Gold Hits 3-Month High on Israel-Hamas War, Mixed Fed Signs

Gold prices hit their highest levels in three months on Friday amid continued demand for traditional safe-haven assets due to ongoing tensions in the Middle East, while mixed cues on the Federal Reserve’s interest rates curbed gains in the US dollar and Treasury yields.

Spot gold climbed 0.43% to $1,982.91 per ounce, while gold futures for December delivery increased 0.70% to $1,994.40 per ounce. The two instruments have risen close to 2.5% this week, following more than a 5% spike last week.

The yellow metal was on track for its second consecutive week of robust gains, with gold futures trading near the $2,000 per ounce threshold as concerns about the Israel-Hamas conflict led investors to seek safe havens.

More Fed Rate Hikes May Keep Gold Under Pressure

Gold found support on some overnight decline in the greenback and Treasury bond yields as Fed Chair Jerome Powell said higher yields are creating tighter financial conditions, possibly weakening the prospect of the central bank making any further moves.

Still, Powell did not dismiss the potential for one last interest rate hike this year, although his statement signaled a likely end to the Fed’s rate increases.

The outlook resulted in some profit-taking in the dollar, while bond yields retreated from multi-year highs, but the 10-year Treasury note stayed near the 5% level at 4.97%.

However, easing yields and a falling greenback drove gold prices and safe-haven demand up amid fears over the spat in the Middle East. Traders are keeping an eye on Israel’s planned ground attack in Gaza, which may escalate the war.

While the yellow metal benefits from the uncertainty, the Fed maintaining the possibility of further rate hikes, gold’s rally could be kept in check, especially if more economic signals suggest resilience in the world’s largest economy and sticky inflation.

Controlling inflation remains the central bank’s primary objective, and while prices of goods have dropped significantly over 2022, it is still above the Fed’s 2% target.

Pressure on gold is expected to continue as the benchmark interest rates are seen staying elevated for an extended period, potentially above 5%, until at least the end of next year.