Gold is often seen as a hedge against currency depreciation,
particularly against the US dollar. When the dollar strengthens, gold prices
typically decrease, and vice versa. However, on Tuesday, despite the US dollar’s
consolidation (which implies it maintained its value without significant
movement), gold prices rebounded. This suggests that other factors beyond the
strength or weakness of the dollar are influencing the gold market.
The reference to the "higher-for-longer” US rate mantra
suggests that investors anticipate interest rates in the US to remain elevated
for an extended period. This expectation exerts selling pressure on gold. Gold,
being a non-interest-bearing asset, becomes less attractive compared to interest-bearing
assets when interest rates are rising. Investors may prefer assets that offer
potential returns through interest or dividends rather than holding gold, which
does not generate income.
On the other hand, Geopolitical tensions, especially in regions
like the Middle East, often lead to increased demand for safe-haven assets like
gold. Escalating tensions can create uncertainty and instability in financial
markets, prompting investors to seek refuge in assets perceived as safer stores
of value. Gold is historically considered a safe-haven asset due to its
intrinsic value, limited supply, and lack of dependence on any specific
government or economy.
Dr. Kamaran Qader Yaqub
Financial consultant at Investment Spot Company