As geopolitical tensions underpin prices, how far can gold climb?

LONDON (November 22) Gold prices have quickly bounced back from their steep losses, and were on course to climb over $2,700 per ounce again. 

Prices have risen for four consecutive sessions as safe-haven inflows have increased, following a lacklustre revenue forecast by Wall Street giant NVIDIA Corporation and rising Russia-Ukraine tensions. 

Gold prices on COMEX have risen 4.7% so far since the close of last week.

Most of these gains have been on the back of intensifying Russia-Ukraine tensions. 

At the time of writing, the December gold contract on COMEX was $2,690.35 per ounce.

Prices had touched a two-week high of $2,694.40 per ounce earlier in the session. 

This year gold has climbed over 30% so far as the yellow metal has been buoyed by expectations of lower interest rates and rising geopolitical tensions.

However, the dollar’s surge after President-elect Donald Trump won the US 2024 elections, halted the rally in prices. 

Experts had also said that the correction in prices from $2,800 to about $2,550 was healthy.

The World Gold Council said last week that the correction in gold prices would not be a prolonged one. 

Carsten Fritsch, commodity analyst at Commerzbak AG, said.:

 

Since the arguments in favour of gold have not diminished, the lower price level is apparently leading to buying interest.

“This can be seen from inflows into the world’s largest gold ETF since Friday,” he added. 

“It’s really one main geopolitical factor that’s at play here in the gold market over the course of the last several days – the increased tensions between Ukraine and Russia is probably most notable,” David Meger, director of metals trading at High Ridge Futures, was quoted by Kitco.com. 

Geopolitical tensions 

Russia recently said that the bar for using nuclear weapons has been lowered after the US allowed Ukraine to use US-made weapons in the war against the Kremlin. 

This raised concerns over escalating tensions in the region and the involvement of the US. 

Over the last weekend, Russia had launched its biggest attacks in almost three months on Ukraine, crippling the nation’s power grid. 

This prompted Ukraine to retaliate with a series of strikes against Ukraine this week, using western weapons. 

The escalating tensions have increased safe-haven inflows into gold and silver, which has supported prices in the last one week. 

“This, in turn, supports prospects for a further near-term appreciating move for the commodity, which remains on track to register strong weekly gains and snap a three-week losing streak,” Haresh Menghani, editor at Fxstreet, said in a note. 

How far can prices climb?

Gold prices had touched a series of record highs in the past few months. 

When the Middle East conflict between Israel and Iran erupted in October, gold prices on COMEX hit the $2,700 level for the first time. 

Subsequently, in the next few days, prices breached the $2,800 level as well. 

“Bulls’ next upside (gold) price objective is to produce a close above solid resistance at $2,700.00,” Jim Wyckoff, a senior market analyst at Kitco Metals, said in a note.

According to analysts at Fxstreet, if gold can consolidate above the $2,700-per-ounce level, prices could rise higher from there. 

“Acceptance above the said barriers will reaffirm the positive bias and lift the XAU/USD towards the next relevant hurdle near the $2,736-2,737 region,” Menghani said in the note. 

Though Commerzbank AG remained slightly less optimistic about gold’s prospects.

The German bank expects prices to average $2,600 per ounce during the December quarter, and for the first half of 2025. 

The rise in prices could also be limited if the US Federal Reserve slows down its rate-cut cycle.

Traders expected the Fed to cut interest rates by 25 basis points in December.

But, bets have slipped from as high as 85% last week to 55.9% currently, according to the CME FedWatch tool.

Central bank buying to support gold

Global central banks had slowed their purchases of gold in the last quarter ending in September, according data from the WGC. 

Gold buying by global central banks fell 49% on year to 186.2 tons during the September quarter. 

However, purchases by global central banks were at 694 tons since the beginning of 2024.

This is below the 2023 record, but is in line with the levels seen in 2022. 

“Based on statements from some central banks, there are now clearer indications that the sharp increase in the gold price since March has indeed inhibited some buying, as well as encouraging some selling among banks that manage their gold reserves tactically,” WGC noted. 

However, buying is likely to pick in the coming months, as per some experts. 

ANZ Research said:

 

Geopolitics, de-dollarisation and the waning appeal of US assets will remain structural drivers for central bank purchases.

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