Gold prices climbed to their highest levels in over two weeks, bolstered by rising demand for safe-haven assets amid escalating geopolitical tensions and China’s return to purchasing gold. While the precious metal experienced a rally fueled by these factors, analysts advise caution as underlying risks persist.
Over the past two trading days, gold prices have been on the rise, driven by growing haven demand and China’s resumption of gold purchases. Additionally, expectations for further rate cuts by central banks have supported the bullish momentum for the metal. On Wednesday morning, gold futures on the Comex rose 0.71%, reaching $2,737 per ounce as of 5:12 am CET.
Geopolitical Tensions Boost Safe-Haven Demand
The surge in gold prices follows the recent escalation of geopolitical unrest, particularly in Syria, where rebel forces captured Damascus over the weekend, effectively ending President Assad’s 50-year rule. This development, combined with ongoing Middle East conflicts, has increased global political and economic uncertainties, which typically drive up demand for safe-haven assets like gold. A similar surge in gold prices was observed in late November amid the intensifying war between Ukraine and Russia.
China’s Economic Stimulus and Gold Purchases
China’s renewed commitment to gold buying has further fueled the metal’s upward movement. On Monday, Chinese officials pledged to adopt a “more proactive fiscal policy” for 2025, signaling potential rate cuts, higher deficits, and increased government borrowing. The People’s Bank of China also resumed buying gold reserves in November after a six-month hiatus.
Ray Jia, head of research for China at the World Gold Council, noted that China’s gold demand is expected to stabilize in 2025, bolstered by anticipated rate cuts and increasing economic pressures, particularly amid trade tensions with the US.
Central Banks Poised for Further Rate Cuts
Market participants are now turning their attention to upcoming central bank decisions. The Bank of Canada (BoC) is expected to reduce its policy rate by 50 basis points later today, while the Swiss National Bank (SNB) and the European Central Bank (ECB) are both anticipated to cut rates by 25 basis points each. Lower interest rates decrease the opportunity cost of holding gold, further enhancing its appeal as a store of value.
In the US, inflation data for November, set for release this week, will play a key role in shaping the Federal Reserve’s policy outlook. Markets anticipate a slight uptick in the annual Consumer Price Index (CPI) to 2.7%, which could reinforce expectations for another 25 basis point rate cut next week.
Bearish Factors Pose Risk to Gold
Despite the recent rally, there are concerns that could limit gold’s upward momentum. Michael Brown, senior research strategist at Pepperstone, cautioned that the rally could be short-lived, especially as gold’s rise came despite a sell-off in US Treasury bonds, which typically signals a bearish market for gold.
Historically, gold prices have an inverse relationship with the US dollar and government bond yields. A stronger dollar and rising bond yields can exert downward pressure on gold, while a weaker dollar and falling yields tend to support its price.
Following Donald Trump’s recent electoral victory, the dollar has strengthened, and US government bond yields have surged, driven by expectations that renewed tariffs will increase inflationary pressures and prompt the Federal Reserve to tighten monetary policy. With the dollar and US 10-year bond yields showing renewed strength this week, gold faces potential headwinds. If inflation data surpasses expectations, it could amplify these pressures, leading to a significant pullback in gold prices in the near term.
Related topic:
Best 5 Places To Buy Gold Futures
