Gold continues its gains on Monday with a growth of more than 0.5% and touches the level of $2,525 per ounce in spot prices, which is close to the historical highs from last week.
Gold’s gains come as the dollar continues to weaken and Treasury yields decline with high sentiment about multiple interest rates cuts this year, especially after Jerome Powell’s speech on Friday.
Escalating geopolitical tensions and the absence of a near-term horizon for calm in the Middle East contribute to fuelling the bullish momentum of the safe haven.
After Powell’s speech in Jackson Hole, markets became more certain about the beginning of the interest rate cut in September with the Fed Chairman directly discussed this expected date.
This provided further impetus to the hypothesis of a 50-basis point cut, although the probability is still in favour of a quarter point cut with a probability of 63.5%, according to the CME FedWatch Tool. This is what pushed the dollar today towards more of its lowest levels in more than a year at 100.7 points.
As for the Middle East, we witnessed more rounds of unprecedented escalation on the Lebanese front, between Hezbollah and Israel, in conjunction with the failure of the ceasefire negotiations that took place in Egypt to reach a breakthrough, which is what keeps the geopolitical risk premium supporting gold.
However, while the escalation that took place over the weekend seems like the next step on the road to a large-scale regional war, both sides have shown signs of de-escalation and not to expand the scope of the conflict, according to The Wall Street Journal.
Both sides also hope that what happened will be enough for either of them to declare a victory and thus avoid a confrontation on a larger scale, according to The Associated Press. However, the possibility of a large-scale conflict still exists if the status quo of tit-for-tat attacks remains as it is, according to The Journal as well.