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Gold prices decline as safe haven rally comes to a halt, focus shifts to Middle East tensions

Gold Prices Fall as Safe Haven Rally Pauses

Gold prices fell on Monday, reversing course after a strong rally driven by increased safe haven demand. The focus now shifts to the potential spillover from the Israel-Hamas conflict.

The yellow metal saw some profit taking after surging over 5% in the previous week, as investors rushed to safe haven assets amid the onset of the Israel-Hamas war.

Markets are closely watching to see if the Israel-Hamas conflict will escalate and impact the Middle East region, particularly as Israel prepares for a ground offensive in the Gaza strip.

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Gold fell 0.7% to $1,920.07 an ounce, while December futures dropped 0.4% to $1,933.15 an ounce by 00:15 ET (04:15 GMT).

Higher U.S. Rate Outlook Limits Gold’s Appeal

Gold prices have been weighed down by a stronger-than-expected U.S. economic recovery, which points to a sustained hawkish stance from the Federal Reserve. This is likely to keep interest rates higher for a longer period.

The prospect of higher U.S. rates has limited the upside potential for gold, even as worsening global economic conditions have increased safe haven demand.

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While gold did see some strong gains on safe haven demand, the U.S. dollar remains the preferred safe haven asset. Inflows to the dollar brought it close to a 10-month peak last week.

Higher interest rates make gold less attractive as they increase the opportunity cost of holding the yellow metal. This has been a major factor in limiting significant gains in gold prices.

Copper Rebounds with China GDP in Focus

Copper prices rebounded sharply on Monday after hitting a five-month low in the previous week.

Copper rose 0.5% to $3.5907 a pound.

This week, the focus is on key economic readings from China, particularly the third-quarter GDP report.

The report is expected to show further weakness in Chinese economic growth, with little improvement in business activity despite stimulus measures.

This trend is concerning for Chinese copper demand and could lead to more weakness in copper prices in the coming weeks. China-related concerns have been a key dampener on copper prices over the past year.

The People’s Bank of China is also expected to make a decision on its key interest rates this week, although a change is unlikely.

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