Gold breaks $2,050, a safe haven amid war and a gift from the Fed

Gold prices rose on Monday, breaking above $1,950 as investors took advantage of the geopolitical turmoil in the Red Sea following the announcement by the United States and the United Kingdom that they would continue their campaign of airstrikes against Houthi rebels in the Red Sea.

One of the factors driving gold prices higher in the Asian session was the turmoil in the Red Sea and the expansion of the conflict zone in the Middle East, which now stretches from the Gaza Strip, which is under attack from the Israeli army, to the Bab al-Mandab Strait and Yemen, where the United States, the United Kingdom, and several other countries have announced the start of airstrikes against Houthi forces.

Russia has rejected the strikes in the UN Security Council, calling them illegal. A Houthi spokesman said that the strikes by the Western coalition had been ineffective.

This development has disrupted traffic in the Red Sea and increased the threat to navigation in the area.

Current gold prices

Gold futures are now trading at $2,059.7, up 0.39%. Spot gold is also up 0.31% to $2,055.59 per ounce. On the other hand, the US dollar index is stable at 102.169 against a basket of foreign currencies.

Oil rises as investors await developments in the Middle East

Oil prices rose on Monday as traders awaited the possibility of supply disruptions in the Middle East following airstrikes by US and British forces on targets of the Houthi armed group in Yemen to prevent them from attacking ships in the Red Sea.

The two benchmarks jumped more than 2% last week, touching their highest levels of the year during the session, after US and British forces carried out dozens of airstrikes against Houthi forces in response to months of attacks on shipping in the Red Sea. The Houthi rebels, who are allied with Iran, say their attacks are in retaliation for the war that Israel is waging on Gaza.

The Houthis threatened on Sunday “a strong and effective response” after the United States carried out another strike overnight, which led to an escalation of tensions. The United States later said it had shot down a missile fired at one of its ships from Houthi-controlled areas in Yemen.

A number of tanker owners have moved away from the Red Sea and several tankers changed course on Friday after the strikes, although traders are still monitoring Iran’s response and its impact on shipments through the Strait of Hormuz, the world’s most important oil transit route.

In Libya, protesters demanding an end to corruption have threatened to close two more oil and gas facilities after shutting down the Sharara field, which produces 300,000 barrels per day, on January 7.

In the United States, energy and natural gas companies are preparing for a severe cold wave that is expected to cause record demand for natural gas as supplies are reduced due to frozen wells.

Euro rises against dollar amid chances of narrowing gap between US and European rates

The euro rose against the dollar by nearly 0.2% to $1.0967, from its opening price of $1.0950, and hit a low of $1.0940.

European Rates

The continued hawkish comments from European Central Bank officials and better-than-expected economic data in the eurozone are reducing the chances of the bank cutting European interest rates in March.

Vice President of the European Central Bank Luis de Guindos said last week that maintaining interest rates high for long enough will help achieve the medium-term inflation target of 2%.

US Rates

Data on producer prices in the United States for December raised the pricing of futures contracts for the chances of the Federal Reserve cutting interest rates by around 25 basis points at its meeting on March 20 from 65% to 73%.

To reprice those contracts, traders are awaiting the release of several important economic data in the United States this week, especially the retail sales data scheduled for release on Wednesday.

Interest Rate gap

The interest rate gap between Europe and the United States is currently at 100 basis points, the smallest gap since May 2022. According to current expectations, the gap will narrow to 75 basis points in March, which would be supportive of the euro’s rise against the dollar.

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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.

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