The price of an ounce of gold reached $1890 today, its highest level since June 2021. Investors seem to be directing capital toward the safe haven due to, among other things, concerns about Russia's military assault on Ukraine and the potential consequences of that aggression. However, there are also other factors that are currently working in gold's favor.
The transcript of the Federal Reserve's most recent meeting, released yesterday, contained no indication of a 50 basis point interest rate hike, which could also contribute to the gold price. Indeed, the probability of a March interest rate hike has fallen to 30 percent, according to the valuation of federal funds rate futures.
A lower probability of a rate hike in the U.S. and increased tensions in Eastern Europe may cause increased investor demand for U.S. bonds. This, in turn, may lead to a drop in yields, and consequently gold may then become more attractive. The yield on 10-year U.S. Treasury bonds fell to 2 percent today, reaching a 30-month high of 2.0645 percent during the previous session.
Turmoil on the oil market favourable for gold
Another factor potentially influencing gold prices could be the situation on the oil market. Today, the price of a barrel of WTI oil seems to have fallen to around $90. The news that the nuclear agreement with Iran seems to be closer today than ever before may have contributed to this. If it happens, the U.S. may lift sanctions from Iran and this will likely increase the supply of oil on world markets, which could lead to lower prices.
In that case, inflation expectations could start to fall if oil stopped rising in price. A drop in inflation expectations may reduce the chances of the pace of interest rate hikes, which in turn may again have a positive impact on gold.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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