Gold prices extended their gains and hovered near record high levels on increased safe-haven demand for the precious metal.
Gold’s rally is increasingly gaining momentum ahead of the US presidential election in November.
Former President Donald Trump and Vice President Kamala Harris are running neck-and-neck in opinion polls, and a possibility of Trump victory is seen as a threat to a stable geopolitical outlook, according to Fxstreet.com.
Additionally, the 16th BRICS summit is taking place in Russia, where Moscow is discussing finding an alternative to the dominance of the US dollar. A currency backed by gold is touted as a viable option, Fxstreet said in a report.
Gold prices fueled by geopolitical tensions
Despite efforts to stabilise the situation in the Middle East, war between Israel and Iran-backed Hezbollah in Gaza and Lebanon rages on.
“US Secretary of State Anthony Blinken seems no closer to securing a ceasefire despite headlines announcing progress, as was the case on his last visit,” Joaquin Monfort, editor at Fxstreet, said in a note.
Gold prices on COMEX have risen more than 30% since the beginning of this year. “As things currently stand, that would be the strongest annual increase in 45 years,”Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
Furthermore, reports from Sky News claimed that Blinken had to take cover in a bunker on Wednesday after air raid sirens went off over Tel Aviv.
Trump trade narrative has reinforced uptrend in gold
The trade narrative has changed in the US with the rising probability of Donald Trump winning the Presidential elections.
Kelvin Wong, senior market analyst at OANDA:
Given that Trump’s “generous” corporate tax cuts proposal to reduce the tax rate to 15% from 21% will likely widen the US federal deficit further, in turn leading the market to question the credit standing of the US government (such as the prospect of more frequent government shutdowns) that may see an erosion of confidence in US Treasuries and strengthened Gold.
If Trump wins, he is likely to impose more tariffs on the likes of China, which could reignite a trade war between the two top economies of the world. This is bullish for gold in terms of a safe-haven asset.
Wong said:
Trump’s proposed tax and trade tariffs policies are likely to reignite upward inflationary pressures in the medium to long-term.
Market sentiment favours gold
The sentiment among investors about gold remained positive even with higher prices.
Traders are believed to be treating any sort of price declines in gold as a major buying opportunity.
This means any drop in gold prices is short-lived and limited in scope, according to Commerzbank’s Fritsch.
Moreover, significant inflows have been coming into exchange-traded funds (ETFs) for gold.
According to a Bloomberg report, inflows into gold ETFs totalled 13 million tons for the last week.
However, Commerzbank AG believes that the current upswing in gold prices to be an exaggeration, and a correction is long overdue.
“It is not possible to predict when and from what level the correction will start. However, the extent of the correction will presumably increase with the price level,” Fritsch said.
At the time of writing, the December gold contract on COMEX was at $2,759 per ounce, largely unchanged from the previous close.
The contract had hit a record high of $2,772.55 per ounce earlier on Wednesday.
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