Conflicts in the Middle East fuel demand for safe havens
Escalation in the Middle East, including Israeli airstrikes on Hezbollah positions in Lebanon and Gaza, has created a sense of uncertainty in the global market, leading to increased demand for gold. With tensions unlikely to ease any time soon, investors have turned to gold as a hedge against market volatility. Ricardo Evangelista, senior analyst at ActivTrades, noted that the current geopolitical environment is keeping gold prices stable despite a strengthening US dollar.
“The tug-of-war between the dollar’s recent strength and safe haven demand is likely to keep gold prices within a range until clearer signals emerge from US economic data,” Evangelista said.
Government bond yields rise as expectations about interest rate cuts adjust
Ten-year U.S. Treasury yields, closely watched by traders, climbed back above 4% on Monday after strong labor market data changed market sentiment. September nonfarm payrolls rose by 254,000, well above the expected 150,000, indicating the U.S. economy remains resilient. As a result, expectations for a significant rate cut in November have diminished, with traders now pricing in a 95% chance of a 25 basis point cut, according to CME Group’s FedWatch tool.
Stronger-than-expected economic data has led to a reassessment of how aggressively the Fed will ease monetary policy. “The employment update suggests the Fed could completely reconsider a rate cut in November,” said Ian Lyngen, head of US Rates Strategy at BMO Capital Markets, although he noted a 25 basis point cut remains the most likely outcome.
The dollar is strengthening and limiting gold’s upside potential
The US dollar hovered around a seven-week high, supported by the robust jobs report. A stronger dollar tends to make gold more expensive for foreign buyers, capping any significant upward movement in gold prices. The dollar index rose 0.05% to 102.60, nearing the peak of 102.69 reached after Friday’s job data release. Analysts including ING’s Francesco Pesole noted that the market has largely abandoned expectations of a 50 basis point rate cut, limiting the dollar’s downside potential.
Despite these headwinds, gold has managed to remain relatively stable as continued demand for safe havens continues to offset the dollar’s rise.