Gold has started the week on strong footing, with a combination of geopolitical and economic concerns driving demand.
Having dropped to nearly $3,200 last week, gold has rebounded to a peak of $3,387.54 this morning, with most of the gains coming after the weekend close. In GBP, gold has climbed back above £2,500 per ounce, and in Euros gold almost hit €3,000 once more after reaching a peak of €2,995. This leaves gold up 2.3% in the past 24 hours in USD, but further volatility is expected ahead of a potentially big week for the metal.
Wednesday marks the Federal Reserve’s latest meeting on US interest rates, and all eyes will be on the decision. Markets are confident that rates will remain unchanged tomorrow, but will be watching the Fed’s statements closely for any hints as to the direction of travel for June or July’s meeting. Any hawkish or dovish tilts to their comments could spark some further movement for the US dollar and to gold as a result.
There are several other factors giving gold a boost this week. Chinese traders have returned following a 5-day May holiday period that was suggested as one of the main reasons for gold’s dip last week. China’s economy remains highly exposed to risks from the trade war, as well as ongoing weakness in core sectors like property, and Chinese investors have been turning to gold as a safe haven option for over a year now.
President Trump has stated that a trade-deal with China could be reached in the coming weeks, and that an announcement could be made as early as this week. If a deal is agreed between the two, it could pose a downside risk to gold, but it remains to be seen if such a deal is confirmed, and what it would entail. President Trump announced 100% tariffs on non-American made movies over the weekend, but has already stepped-back slightly with a statement he will meet Hollywood executives to discuss the proposal first.
Geopolitics remains a longstanding driver for the gold price. The conflict in the Middle East continues to escalate, with Israel approving a plan to ‘capture’ Gaza in its efforts against Hamas. In Europe, the US has completed its minerals deal with Ukraine, and drone strikes continue to be traded between the two countries, with no sign of an end to the three-year conflict in sight.
The uncertainty surrounding tariffs means that volatility remains, and another dip such as last week is still possible, particularly if there is movement on the trade war between the US and China. If the rumoured trade deal isn’t forthcoming however, and the Federal Reserve suggest a more dovish outlook for future meetings, then gold could see some further positive momentum towards recent record highs.
