Gold hits new high, oil rises on geopolitical tensions
Gold prices hit another historic peak on Tuesday and oil extended gains over rising tensions in the Middle East, while stocks wilted as traders worried whether the rally has run its course.
The haven precious metal advanced as high as US$2,279.41 per ounce to extend its blistering record-breaking run, driven also by the prospect of interest-rate cuts in the coming months.
Oil prices pushed to five-month highs as Iran warned Israel that it will retaliate for a deadly air strike on its consular annex building in Syria’s capital Damascus, raising fears of a spillover of the Gaza war across the region.
“Gold’s historic safe haven appeal has been re-ignited by geopolitical factors which includes the current crisis in the Middle East,” said Rabobank analyst Jane Foley.
“The possibility of an escalation in the Middle East given current headlines regarding Iran’s accusations of Israeli strike on a consulate building in Syria are underpinning gold prices.”
Gold prices are rising as traders anticipate interest-rate cuts by the European Central Bank, Bank of England and the US Federal Reserve in June as inflation is slowing, analysts said.
“When interest rates fall, gold becomes relatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment,” said City Index analyst Matthew Weller.
In equities trading, New York’s main indices fell, a day after a stronger-than-expected reading of US manufacturing and prices paid sparked questions about the Fed’s timeline for cutting interest rates.
US Treasury bond yields, a proxy for interest rates, climbed again as analysts to push back expectations for Federal Reserve interest rate cuts.
On Tuesday, a senior Federal Reserve official said that she recently raised her prediction for interest rates over the longer term.
“I raised my estimate to reflect the continued resilience in the economy despite high nominal interest rates and higher model-based estimates of the equilibrium interest rate,” said Cleveland Fed president Loretta Mester
Market analyst Fawad Razaqzada at City Index and Forex.com said that concerns about the rally that has seen the S&P 500 rise around 28% since October has prompted some profit-taking.
“Following such a big move, the risks of a correction are high, especially when you consider for example that US oil prices are pushing US$85 per barrel and governments are facing rising cost of servicing their debt as yields climb.”