Gold, the precious safe haven metal, experienced a slight decline at the beginning of trading on Tuesday, October 10, 2023, following its rise on the previous Monday.
Gold’s Rise on Monday
Gold prices increased during Monday’s trading session. This rise was a result of increased demand for gold as a safe asset amidst escalating tensions in the Middle East, including the attack by Hamas on Israeli settlements. The yellow metal had faced losses for two consecutive weeks prior to this increase, following the announcement of the Federal Reserve’s interest rate decision.
At the end of the trading session, gold futures for December rose by approximately 1%, equivalent to $19.1, reaching $1864.3 per ounce. This marked the highest settlement for gold since September 29th.
Increased Demand for Gold
Military conflicts between Israel and the Islamic Resistance Movement (Hamas) contributed to an increased demand for gold as a safe asset, alongside rising oil prices. Gold prices had reached their lowest levels in seven months at the end of the previous week, driven by the increase in US Treasury bond yields.
In global markets, gold prices in Shanghai rose by approximately 2.7% during the trading session, widening the gap between gold prices in Shanghai and London to nearly $112 per ounce.
The “Fed Watch” tool indicated a reduced likelihood of a 25 basis point interest rate hike at the upcoming Federal Reserve meeting in November. This reduction is attributed to the heightened tensions in the Middle East, which may lead to the Federal Reserve leaning towards not raising interest rates at this time.
Gold is considered a safe investment in times of economic uncertainty, but it does not generate a return, making it less attractive when interest rates rise. Yields on ten-year Treasury bonds significantly declined from their highest levels since 2007. The dollar index also weakened due to signals from US central bank officials suggesting that the increase in long-term bond yields could deter further short-term interest rate hikes.
Market participants are now awaiting the release of the minutes from the Federal Reserve’s meeting held in September, which is scheduled for Wednesday.
