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Gold prices surged to yet another historic peak on Tuesday, while oil prices continued to climb amidst escalating tensions in the Middle East. However, global stocks faced downward pressure as investors questioned the sustainability of the recent market rally.
The precious metal, known for its status as a safe haven asset, reached as high as $2,277.02 per ounce, extending its remarkable streak of record-breaking gains. This surge was driven in part by expectations of interest-rate cuts in the near future.
Meanwhile, oil prices saw further gains following Iran’s warning to Israel regarding retaliation for an airstrike on its consular annex building in Damascus, Syria. The incident raised concerns about potential spillover effects from the ongoing Gaza conflict across the region.
According to Rabobank analyst Jane Foley, gold’s enduring appeal as a safe haven asset has been reignited by geopolitical tensions, particularly those in the Middle East. Foley highlighted the possibility of further escalation in the region, citing recent headlines surrounding Iran’s allegations of an Israeli strike on a consulate building in Syria as a key driver of gold prices.
Gold prices are rising as traders anticipate interest-rate cuts by the European Central Bank, Bank of England and the US Federal Reserve in June as inflation is slowing, analysts said.
“When interest rates fall, gold becomes relatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment,” said City Index analyst Matthew Weller.
– Stocks retreat –
In equities trading, New York’s main indices fell, a day after finishing mixed on stronger-than-expected reading of US manufacturing and prices paid sparked questions about the Fed’s timeline for cutting interest rates.
The Institute for Supply Management’s gauge of factory activity showed expansion for the first time in March, after 16 straight months of contraction.
But more concerning for investors were figures showing that prices paid hit their highest mark since July 2022, which fanned worries that inflation could start to creep back up and complicate the Fed’s plans to cut rates.
Markets are now pricing in about 65 basis points of cuts this year, lower than the Fed’s guidance of 75 points, and yields on US government bonds have risen.
Market analyst Fawad Razaqzada at City Index and FOREX.com said that concerns about the rally that has seen the S&P 500 rise around 28 percent since October has prompted some profit-taking.
“Following such a big move, the risks of a correction are high, especially when you consider for example that US oil prices are pushing $85 per barrel and governments are facing rising cost of servicing their debt as yields climb,” he said.
In Europe, London briefly broke above 8,000 points to enter record closing territory thanks to higher oil prices, but gave up its gains and ended the day lower.
Paris and Frankfurt also fell in subdued deals following a four-day Easter shutdown.
In Asia, Hong Kong stocks rallied as Asian traders also returned from an extended weekend break to forecast-beating Chinese factory data that lifted hopes for the world’s number-two economy, though other Asian markets were mixed.
With inputs from AFP