Spot gold prices shot up more than 6% in the past 30 days as tough macroeconomic and geopolitical circumstances highlighted by rising treasury yields, the Israel-Hamas war and US debt turmoil increased the appeal of safe-haven assets. Meanwhile, gold futures crossed the $2,000 mark on Thursday for the first time in two months.
Gold Futures Hit $2,000 While Treasury Yields Stay Elevated
Prices of gold rebounded on Thursday as the tensions in the Middle East and growing US debt pushed investors toward safe-haven assets. Notably, gold futures rose to $2,003 per troy ounce on the day, breaching the $2,000 threshold for the second time in a week and heading for the $2,089 mark – a level last ween in August 2020.
Interestingly, the resurgence comes amid a rally in 10-year Treasury yields, contradicting the typical inverse correlation. The yield on the 10-year Treasury note exceeded the 5% mark earlier this week for the first time in 16 years, dampening the effect of a largely positive earnings week for the Big Tech.
Meanwhile, spot gold prices were higher at $1,985 on Friday, up more than 6.3% in the past 30 days.
Gold More Appealing Amid Middle East Tensions and US Debt Crisis
The increasing appeal of gold comes due to two main factors. Firstly, the conflict in the Middle East between Israel and Hamas continues to persist, forcing investors to protect their capital in low-risk assets.
After a clash that took thousands of lives, the war could escalate further if Israel launches a full-scale ground invasion of the Gaza Strip, as it previously pledged. Due to its rarity, geopolitical risks like this tend to push the prices of safe-haven assets like gold. A similar rally happened when Russia invaded Ukraine, with the bullion soaring as high as $2,078.
The other gold price catalyst is the current fiscal situation in the US, with the national debt hitting a record of more than $33 trillion. The upswing comes as Treasury bond issuance gained momentum since Congress hiked the country’s debt ceiling, affecting the supply-demand balance.
Gold prices often decline when interest rates are high, as investors favor assets that offer higher yields, such as interest-bearing investments. However, in the current situation where Treasury yields are rising due to uncertainty in fiscal policies, investors prefer gold. Unlike stocks, corporate bonds, or government debt, gold is considered a safe-haven asset not exposed to the risk of default by its issuer.
At its current price, spot gold faces a resistance zone at around $1,987. Breaching this threshold would potentially set the bullion on track to reclaim the $2,000 level soon.
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