Gold Rally Continues: New Trend or Temporary?
Gold continued its rally for a third straight day on Wednesday (April 1), buoyed by signs that the war in the Middle East may be nearing an end. Traders are shifting their attention from potential interest rate hikes to potential long-term risks to economic growth. Gold prices rose 1.2%, breaking through $4,700 per ounce, adding to the 3.5% surge in the previous session. President Donald Trump's statement that the war with Iran is expected to end in two to three weeks fueled market optimism, with Trump indicating that the US has achieved most of its military objectives and will hand over the Strait of Hormuz to other countries.
This rise in gold prices also coincided with a rally in the stock market and a decline in the US dollar. Bond traders are beginning to reduce expectations that central banks will raise interest rates to control inflation risks posed by the conflict. Instead, they are focusing on the war's impact on economic growth. Federal Reserve Chairman Jerome Powell previously stated that long-term inflation expectations remain subdued, signaling that the US central bank may focus more on the depressed labor market.
According to Yuxuan Tang, head of Asia rates and FX strategy at JPMorgan Private Bank, gold's appeal as a safe haven typically increases when the narrative shifts from inflation to economic growth risks. Tang also added that he believes the Federal Reserve has limited capacity to raise interest rates this cycle and will prioritize labor market recovery. This limited rate hike is considered a boost for gold prices, which do not pay interest.
Despite a rebound in recent days, gold prices fell nearly 12% in March, marking their worst monthly performance since October 2008. The war in the Middle East, which entered its fifth week, has shaken global markets and caused disruptions to energy and other goods supplies, fueling concerns of a surge in inflation that outweighs gold's traditional appeal as a safe haven.
Looking ahead, the gold price outlook remains bullish, despite a significant decline earlier in the year. Goldman Sachs maintains its optimistic outlook, predicting gold prices will reach $5,400 per ounce by year-end. This analysis is driven by continued central bank gold buying and projections of two US interest rate cuts this year. If the Iran war ends as Trump predicts, gold prices will likely be affected by market calm, but negative sentiment surrounding long-term economic risks will still provide strong support for the price of this precious metal. (asd)
Source: Newsmaker.id
