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Gold prices edged higher in Asian trade on Friday, driven by a weaker dollar and heightened geopolitical tensions, as traders positioned themselves ahead of a potential December interest rate cut by the Federal Reserve. The precious metal, often viewed as a safe haven, regained some of the ground lost earlier in the week amid a fragile geopolitical landscape.
Safe Haven Demand Rises Amid Russia-Ukraine Escalation
The intensification of the conflict between Russia and Ukraine has been a significant driver of recent gold price movements. Russia’s large-scale strikes on Ukraine’s energy infrastructure and threats to target Kyiv with advanced missiles represent a notable escalation in the war. Compounding these tensions, Russia recently lowered its nuclear retaliation threshold, further unsettling global markets.
In the Middle East, the tenuous Israel-Hezbollah ceasefire added to market jitters. Mutual accusations of truce violations have dampened hopes of sustained peace, prompting investors to seek refuge in gold.
Weaker Dollar Boosts Gold Prices
The U.S. dollar’s retreat this week provided another tailwind for gold. Markets continue to anticipate a December interest rate cut by the Federal Reserve, with traders pricing in a 68.6% chance of a 25 basis-point cut, according to CME’s FedWatch tool. Despite recent data suggesting resilience in U.S. inflation, Fed officials appear inclined toward gradual rate easing.
The dollar’s decline, alongside these rate cut expectations, bolstered gold’s appeal by making it cheaper for holders of other currencies. Spot gold climbed 0.9% to $2,660.69 an ounce, while gold futures expiring in February gained 0.9%, trading at $2,684.75.
Outlook for Gold Prices and Interest Rates
While the immediate outlook for gold is supported by geopolitical tensions and a softer dollar, the long-term trajectory hinges on U.S. interest rate policy. Inflation remains above the Fed’s 2% target, and expansionary fiscal measures under the Trump administration are likely to keep upward pressure on prices and rates.
Federal Reserve Chair Jerome Powell and other officials are expected to provide further insights in their upcoming addresses, potentially setting the tone for December’s policy decision.
Broader Metals Market Trends
Gold’s rally coincided with gains across other precious and industrial metals. Platinum futures rose 1.1% to $947.35 an ounce, and silver futures gained 1.5% to $31.157 an ounce. In the industrial metals space, copper futures on the London Metal Exchange increased 0.7% to $9,061.50 a ton, supported by expectations of improved demand from China.
China’s Role in the Metals Market
All eyes are on China’s upcoming purchasing managers index (PMI) release, which is expected to show an uptick in economic activity. With Beijing implementing substantial stimulus measures in recent months, a positive PMI reading could signal increased demand for industrial metals, potentially boosting copper and other commodities.
Gold prices remain poised for further gains as traders navigate a complex environment shaped by geopolitical risks, a fluctuating dollar, and evolving U.S. monetary policy expectations. While short-term uncertainties prevail, the precious metal’s safe-haven appeal continues to shine amid an unpredictable global landscape.
