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Gold prices drop but remain attractive amid geopolitical tensions and inflation

Yellow metal’s allure as a safe-haven asset remains intact

Published: Sun 8 Sep 2024, 8:35 PM

Updated: Mon 9 Sep 2024, 8:55 AM

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Despite the recent decline, gold’s allure as a safe-haven asset remains intact with geopolitical tensions, inflationary pressures, and potential economic downturns providing a catalyst for a rebound in prices, precious metals analysts said.

Market experts said that after experiencing a dizzying fall in recent weeks on the back of US dollar’s steadfast growth, prices underwent a series of moderate highs and lows on both sides of the $2,500 level last week to ultimately arrive not far from where they began.

Following Friday’s US non-farm payrolls report, traders settled on a negative interpretation and drove gold prices to a daily low of $2,487 per ounce shortly after 12:30 pm. Spot gold then staged a modest recovery, and hovered $5 below the $2,500 level for the remainder of Friday’s trading session.

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Technical analysis suggests that gold is trying to continue its medium-term uptrend. If the quotes grow, the price will reach above the August high, and the next target will be the Target Zone 6, $2,536-$2,526.

Many analysts offer a positive outlook for gold in 2024, expecting it to trade between $2,421.00 and $2,651.00. More conservative forecasts assume a decline in the price to $2,000.00–$2,133.00. Some analysts do not rule out an unprecedented rise to $2,750.23–$2,810.76 per ounce.

Mohamed Hashad, chief market strategist, at Noor Capital, said the market’s uncertainty regarding the future path of interest rates and the overall economic outlook has contributed to increased volatility in gold prices. “Investors are grappling with conflicting signals, as some economic indicators suggest a slowing economy, while others point to continued resilience. This uncertainty has led to a more cautious stance among gold investors, who are hesitant to commit to large positions.”

Hashad said despite the recent decline, gold’s allure as a safe-haven asset remains intact. Geopolitical tensions, inflationary pressures, and potential economic downturns could provide a catalyst for a rebound in gold prices. However, the continued strength of the US dollar and the Federal Reserve’s commitment to maintaining price stability pose significant headwinds.

Long-term forecast expects the rally to continue to $2,799.00 in 2025. For the first quarter of 2026, experts predict that the price of the precious metal will fluctuate in the range of $2,441.00–$2,882.00 and drop to $2,566.00 per ounce by the end of the year.

According to analysts, the recent fall in gold prices can be attributed to the strengthening of the US dollar. As the US economy continues to recover from the pandemic, the dollar has gained strength, making gold less attractive to investors. Additionally, rising interest rates in the US have also contributed to the fall in gold prices, as higher interest rates make other investments more attractive.

Naeem Aslam, chief market analyst at AvaTrade, says, “The strength of the dollar is the main reason why gold prices have fallen. The US economy is recovering strongly, and the dollar is gaining strength as a result. Additionally, rising interest rates in the US have made gold less attractive to investors.”

However, some analysts believe that the fall in gold prices is only temporary, and that the yellow metal will rebound in the long term. According to Jigar Trivedi, fundamental research analyst at Anand Rathi, gold prices may have fallen in the short term, but in the long term, gold remains a safe haven asset. “As geopolitical tensions and inflation concerns continue to persist, gold will remain an attractive investment for investors.”

Geopolitical tensions and inflation concerns have traditionally been the key drivers of gold prices. As a safe haven asset, gold is seen as a store of value during times of economic uncertainty. However, in recent weeks, these factors have taken a back seat to the strength of the US dollar and rising interest rates.

Despite the recent fall in gold prices, some central banks continue to buy gold as a hedge against economic uncertainty. According to the World Gold Council, central banks purchased 273 tonnes of gold in the first half of 2021, the highest level in a decade. This suggests that central banks still view gold as an important asset for diversifying their reserves.

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