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Gold trading reminder: It’s crazy! Gold prices hit a new record high, ignoring the strong dollar and US bond yields?

2024-10-23

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In the early Asian session on Wednesday (October 23), spot gold fluctuated narrowly at a high level and is currently trading around $2,745.98 per ounce. Gold climbed 1% on Tuesday, shaking off the impact of a strong dollar and U.S. Treasury yields, reaching a high of $2,748.87 per ounce, setting a new record high again, closing at $2,748.86 per ounce, as factors such as uncertainty in the U.S. election and the Middle East war stimulated safe-haven demand, and expectations of further monetary easing magnified the rise in gold prices.

U.S. gold futures closed up 0.8% on Tuesday at $2,759.8 per ounce.

Although the U.S. dollar index continued to strengthen, hitting a high of 104.13 since August 2, and the 10-year U.S. Treasury yield hit a three-month high of 4.223%, it was also the uncertainty of the U.S. election and the situation in the Middle East that pushed up safe-haven demand, so it has not been able to suppress the rise in gold prices for the time being.

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Gold, seen as a hedge against geopolitical and economic uncertainty, has risen more than 33% so far this year and hit record highs several times. Falling interest rates have also increased the appeal of holding gold.

"Geopolitical tensions remain the main driver, and with two weeks to go before the U.S. election, the election seems to be still very close, so a fair degree of political uncertainty is also driving safe-haven buying interest in gold," said Peter A. Grant, vice president and senior metals strategist at Zaner Metals.

"Certainly, if the situation in the Middle East heats up further, we could see $3,000 by the end of the year, but I prefer the first quarter of next year," Grant said, adding that the easing of policy by several major central banks is another factor driving the rebound in gold.

A Reuters/Ipsos poll showed that Democratic U.S. Vice President Harris led Republican former President Trump by a narrow margin of 46%:43%.

From a technical perspective, gold's relative strength index (RSI) is currently at 74, indicating that gold prices have entered the "overbought" zone. Investors need to be vigilant.

Spot silver rose 3.2% to $34.84 an ounce on Tuesday, the highest since late 2012.

Han Tan, chief market analyst at Exinity Group, said: "If the bullish factors for precious metals remain unchanged, we should see silver rise above $35 an ounce before the November 5 election."

There are still few economic data on this trading day. Pay attention to the annualized total number of existing home sales in the United States in September; continue to pay attention to the geopolitical situation in the Middle East and news related to the US election, and pay attention to the IMF World Bank Annual Meeting and the Federal Reserve's Beige Book on economic conditions.

The International Monetary Fund said that global markets may underestimate geopolitical risks

The International Monetary Fund (IMF) said on Tuesday that global financial risks have been controlled in the near term, but monetary policy easing may fuel asset price bubbles, and the market may underestimate the risks of military conflicts and upcoming elections.

The IMF warned in its semi-annual Global Financial Stability Report that the "growing disconnect" between escalating geopolitical uncertainty and lower market volatility has increased the possibility of market shocks similar to August, when the Bank of Japan's interest rate hike triggered a large-scale deleveraging operation.

The Washington-based multilateral lender said buoyant credit and equity markets also appeared unfazed by slowing earnings growth and continued deterioration in more vulnerable parts of the corporate and commercial real estate sectors.

The IMF also noted that while monetary easing by most other major central banks is creating “accommodative” financial conditions, rate cuts could push up asset valuations, leading to higher private and government debt around the world and higher non-bank leverage.

“These growing vulnerabilities could amplify adverse shocks, which are more likely to occur amid heightened economic and geopolitical uncertainty due to ongoing military conflicts and uncertainty about the future policies of newly elected governments,” the report reads.

The report comes as the world is in the midst of one of the most geopolitically and economically uncertain periods in decades as global finance chiefs gather in Washington for the annual meetings of the IMF and World Bank.

In addition to the war in Ukraine and escalating conflict in the Middle East, the IMF noted that half the world’s population has or will elect new governments by 2024, including the United States. In many cases, the policy plans of these new leaders are unclear but will have significant economic consequences.

Economists and Wall Street executives are particularly concerned that Republican presidential candidate Donald Trump's plans to raise import tariffs could reignite inflation, while his promised tax cuts could widen the U.S. deficit.

The IMF urged central banks to communicate clearly and cut interest rates gradually, and said regulators should closely monitor corporate debt and commercial real estate and ensure strong bank supervision. The IMF also said regulators should strengthen reporting requirements for non-bank financial institutions such as hedge funds and private equity firms, which play a larger role in financial markets. But the report said regulators generally have less information about the activities and leverage levels of such companies than traditional lenders.

Israel confirms that Safieddine, successor to late Hezbollah leader Nasrallah, has been killed

Israel confirmed on Tuesday that it had killed Hashem Safieddine, successor to Hezbollah leader Sayyed Hassan Nasrallah, who was killed in an Israeli attack on Hezbollah.

The Israeli military said Safieddine was killed in an attack on the southern suburbs of Beirut three weeks ago, the first time the military has confirmed his death. Earlier this month, Israel said he had likely been eliminated.

Hezbollah did not immediately respond to Israel's announcement that it had killed Saffieddin.

Saffieddin, a relative of Nasrallah, was a member of the Jihad Council, Hezbollah's top military body, and a member of the Executive Committee, which oversees Hezbollah's finances and administration.

During the past year of hostility with Israel, Saffieddin served as a key spokesman for Hezbollah, speaking at funerals and other events that Nasrallah had long been unable to attend for security reasons.

Hezbollah lost its general secretary, Nasrallah, in an airstrike on September 27. Despite assassinating several Hamas and Hezbollah leaders, Israel has shown no signs of easing its offensive in Gaza and Lebanon.

Diplomats believe Israel's goal is to lock in an advantageous position before the new U.S. administration takes office after the election.

U.S. Secretary of State Antony Blinken on Tuesday urged Israeli Prime Minister Benjamin Netanyahu to take advantage of the killing of Hamas leader Sinwar to free the hostages in the October 7 attack and end the Gaza war.

Netanyahu said in a statement released by his office that eliminating Sinwar "could have a positive impact on the repatriation of hostages, the achievement of all war goals and the days after the war." But he did not mention whether a ceasefire was possible after a year of war.

Meanwhile, Hezbollah ruled out the possibility of negotiations while the war with Israel continues, claiming responsibility for the drone attack on Netanyahu's holiday villa on Saturday.

Poll: Harris maintains narrow lead in extremely tight race

The latest Reuters/Ipsos poll showed that U.S. Democratic Vice President Harris leads Republican former President Trump by a narrow margin of 46% to 43%, as frustrated voters say the United States is on the wrong path.

The six-day poll ended on Monday, and Harris' lead was almost the same as the Reuters/Ipsos poll a week ago (45% to 42%), further proving that the election is extremely tight with only two weeks left before the November 5 election.

The latest polls show that American voters have a pessimistic view of the economy and immigration - and they generally agree with Trump's positions on these issues.

Voters also said that the economy, immigration and threats to democracy are the most important issues in the United States. When asked which candidate performs better on these issues, Trump leads on the economy (46% to 38%) and immigration (48% to 35%).

But Trump did not perform well on the question of which candidate is better at dealing with political extremism and threats to democracy, with Harris leading 42% to 35%. She also leads on abortion and health care policies.

National polls, including the Reuters/Ipsos poll, provide important signals about voters' views, but the results of the state electoral college determine the ultimate winner, with seven battleground states that may play a decisive role. Polls show Harris and Trump are tied in these battleground states.

Given the close race, the candidates' efforts to ensure their supporters actually vote may be the key to determining the ultimate winner.

The latest Reuters/Ipsos poll surveyed 4,129 U.S. adults nationwide online, including 3,481 registered voters. About 3,307 of those respondents were considered most likely to vote on Election Day. Among those likely voters, Harris led Trump by 3 percentage points, 48% to 45%.

U.S. Treasury yields hit three-month highs on hedging ahead of the election

U.S. Treasury yields hit a three-month low on Tuesday, as hedging ahead of the Nov. 5 U.S. election and expectations that the Federal Reserve will be less dovish curbed demand for U.S. debt.

The shift in momentum toward a more likely Trump presidency weighed on Treasuries, whose policies, including tariffs and curbs on illegal immigration, are expected to stoke inflation.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said Monday's sharp sell-off in Treasuries was "partly due to the market pricing in an improved Trump win."

Betting site Polymarket on Tuesday gave Trump a 66% chance of winning the presidential election and Harris a 34% chance.

"Tariffs and immigration crackdowns are going to create a stagflationary shock," Goldberg said, adding that "you're likely to see the effects of higher inflation first because that's going to show up faster through the data."

The U.S. budget deficit is expected to worsen under either Trump or Harris, which could lead to higher Treasury supply next year.

The 10-year Treasury yield rose 2.2 basis points to 4.204% late Tuesday, having earlier hit 4.222%, the highest since July 26.

The two-year Treasury yield rose 1 basis point to 4.035% on Tuesday. The two-year/10-year yield spread was at 16.7 basis points, with the curve slightly steeper.

"The market is very much in the Trump trade right now, and that's why I think there's a danger that yields will continue to rise," said Tom Fitzpatrick, head of global market insights at R.J. O'Brien.

A strong October jobs report next week could also add to the rise in yields and potentially cause traders to reconsider whether the Federal Reserve will cut interest rates next month.

"I don't think it's inconceivable that the Fed could reconsider action in November, and the market definitely thinks so," Fitzpatrick said. "Rising yields seem to be a real danger."

A much stronger-than-expected September jobs report prompted investors to rule out another big rate cut from the Federal Reserve. Traders now see the Fed cutting rates by 42 basis points by the end of the year, suggesting a less than 100% chance of 25 basis point cuts at each of the next two meetings.

Dollar hits 2-1/2-month high, eyes on U.S. rate path and election

The dollar hit a 2-1/2-month high on Tuesday, extending its recent gains as markets expect the Federal Reserve to slow the pace of rate cuts and investors adjust positions ahead of the tight U.S. presidential election.

The dollar has risen for three straight weeks and was set to rise for the 15th time in 17 trading days as a slew of positive economic data prompted people to lower expectations for the magnitude and pace of the Fed's rate cuts.

"If the U.S. data hadn't been strong before, and not strong relative to the rest of the world, then there wouldn't be this divergence in the direction of the Fed and other central banks, they were at least in opposite directions in tone and rhetoric, and that's what's driving the dollar higher," said Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie.

The dollar index rose 0.12% to 104.08 on Tuesday, hitting 104.10 earlier, the highest since August 2. The dollar index has risen about 3.3% so far this month, and is on track for its strongest monthly performance since April 2022.

The upcoming U.S. presidential election also continues to drive currency movements, with expectations of a win for Republican presidential candidate and former President Trump growing in recent days, which is likely to bring policies such as tariffs that drive inflation higher.

Wizman said: As Trump's victory in the general election becomes more likely, the market is also beginning to price in expectations that U.S. inflation will rise, because his core policy agenda may drive inflation higher, at least certainly more than (Democratic presidential candidate) Harris' core policy agenda.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Gold trading reminder: It’s crazy! Gold prices hit a new record high, ignoring the strong dollar and US bond yields?

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