Gold prices pulled back from their recent over two-month highs on Thursday as concerns ahead of a speech by Federal Reserve Chair Jerome Powell offset the safe-haven demand sparked by the Israel-Hamas conflict.
The yellow metal had experienced a significant rally earlier in the week due to escalating tensions in the Israel-Hamas conflict, raising fears of potential spillover into the broader Middle East region and subsequently fueling demand for traditional safe-haven assets.
However, this rally was curtailed by a resurgence in the U.S. dollar, coupled with a rebound in U.S. Treasury yields to multi-year highs, as markets positioned themselves for anticipated interest rate hikes.
Nevertheless, gold prices held close to the recent over two-month peak, with market participants eagerly awaiting further developments in the Israel-Hamas conflict. The cancellation of a diplomatic summit involving U.S., Egyptian, and Palestinian leaders had also contributed to increased safe-haven demand for gold.
Spot gold experienced a 0.1% decline, settling at $1,946.51 per ounce, while gold futures registered more significant losses, declining by 0.5% to $1,958.35 per ounce by 00:31 ET (04:31 GMT).
Uncertainty Looms Ahead of Powell’s Speech
The potential for gold to advance further remained uncertain, particularly in light of Powell’s impending speech, in which the Fed chair is expected to reiterate his stance on prolonged periods of higher interest rates. The surge in Treasury yields throughout the week indicated that markets are pricing in the likelihood of elevated interest rates, especially following unexpected data pointing to an upswing in U.S. inflation. Overnight statements from other Fed officials had also reinforced the central bank’s hawkish outlook.
This speculation led to a 0.3% rise in the U.S. dollar, curtailing the recent rally in most commodity markets, including gold. Higher interest rates typically do not favor non-yielding assets like gold, as they increase the opportunity cost of investing in such assets compared to relatively secure Treasury bonds. In such a scenario, the dollar tends to benefit, which, in turn, exerts downward pressure on gold prices.