Gold prices rose from their lowest levels in nearly two weeks on Tuesday, with the dollar and Treasury yields falling and traders assessing signs of escalation in the Middle East.
The dollar index fell in line with the decline in the yield on the benchmark 10-year Treasury note to 4.1250%, making the non-yielding bullion more attractive to holders of other currencies.
The United States continued its campaign against the Iranian-backed Houthis in Yemen, while hopes were pinned on a visit by US Secretary of State Antony Blinken to the Middle East to reach a truce in Gaza.
Gold, which is considered a safe haven investment, tends to rise during times of political uncertainty, and this is what is happening now.
Investment Bank Expects Gold Price to Rise to $2200 by End of Year
Despite the statements of the US Federal Reserve Chairman, Jerome Powell, in the 60 Minutes program about the possibility of the Fed cutting interest rates by only 75 basis points in 2024, as mentioned in his dot plot, which is a lower rate than priced by the markets, UBS Bank’s expectations still favor the rise of gold and silver in 2024.
We expect gold to rise due to Federal easing and lower interest rates. We see the gold price reaching $2200 an ounce by the end of the year, in line with a weaker dollar.
Gold prices tend to be inversely correlated with interest rates. As interest rates fall, gold becomes more attractive compared to alternative investments such as bonds, which are expected to yield weaker returns in a low interest rate environment.
Conversely, lower interest rates weaken the dollar, making gold cheaper for international buyers, leading to higher demand.
While there is still a lot of uncertainty about the timing and extent of interest rate cuts, UBS Bank has maintained its expectation that the Federal Reserve will ease policy. Last week, the Federal Reserve announced its decision to leave interest rates unchanged in January, further dampening hopes for a rate cut in March.
Increased Attractiveness of Gold
The attractiveness of the bullion as a safe haven asset has increased since the start of Israel’s war with Hamas on October 7, which contributed to gold prices rising to their highest level ever at $2100 an ounce last month.
Therefore, it is expected that investors will build gold allocations in an environment with a lot of overall uncertainty and geopolitical risks.
Tesla stock loses 56% of its value after recent news and billion-dollar loss
Tesla shares fell sharply on Monday and are on track for their worst close since May 2023. The stock is now down 3.22% and trading at $181.80 per share.
Tesla’s woes come one after another. After the earnings report and Elon Musk’s negative outlook for future sales, news of a recall of 2 million Tesla cars due to technical problems contributed to a new and strong decline in the stock.
This comes less than a week after Tesla lost $56 billion, after a Delaware judge overturned a $56 billion award to Tesla CEO Elon Musk, ruling that the company’s board of directors failed to prove the award was fair or show evidence that they negotiated with him.
In 2018, Tesla awarded its CEO $56 billion in compensation, which helped propel him to the top of the world’s richest list.
The judge has now issued a decision to void the deal between the company and the CEO, describing the compensation as an incomprehensible amount and unfair to shareholders.
Oil rises and ryes on Gaza truce talks
Oil prices rose in early trading on Tuesday as traders focused on US Secretary of State Antony Blinken’s visit to the Middle East to see if it would contribute to reaching a truce in the Palestinian Gaza Strip.
Brent crude futures rose 20 cents to $78.19 a barrel, and US West Texas Intermediate crude futures rose 20 cents to $72.98 a barrel. Both contracts rose nearly 1% on Monday.
Gold and the Dollar Now
Gold futures settled at $2042 per ounce.
Spot gold rose about 0.1% to $2027 an ounce.
On the other hand, the dollar index fell 0.13% to 104.187 points.
Other Metals
Silver rose 0.3% in spot trading to $22.42 an ounce, while palladium jumped 1.4% to $961.38, and platinum rose 0.3% to $898.84.
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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
