Gold reached its highest weekly gain since March

The ounce price of gold rose by 5.47% this week, reaching the highest weekly gain in 7 months, due to the impact of the Israeli-Palestinian conflict.

Concerns that the Israeli-Palestinian conflict may spread to a wider area increased the demand for gold, a safe haven asset.

Hamas’s military wing, the Izz ad-Din al-Qassam Brigades, announced last Saturday that it had launched a comprehensive attack on Israel called “Aqsa Flood”. While thousands of rockets were fired from Gaza towards Israel, armed groups entered the settlements in the region.

While the Israeli army launched an attack on the Gaza Strip with dozens of warplanes, the geopolitical risks that increased over the weekend increased the volatility, especially in commodity prices. Demand for safe haven assets appears to be strengthening as investors reassess the geopolitical risk to the markets.

On the other hand, with the news that the international airports in Damascus and Aleppo were simultaneously out of service due to Israel’s attack on Syria, the ounce price of gold completed the week at $1,932.86, increasing by 5.47%.

The ounce price of gold, which reached its highest weekly gain in 7 months with an increase of 5.47%, achieved a weekly gain of 6.5% in the week of 13-17 March 2023.

Analysts pointed out that the ounce price of gold exceeded $1,900 for the first time since September 27.

Fed members’ “dovish” statements came to the fore

While the expectation that the US Federal Reserve (Fed) and the European Central Bank (ECB) will keep the policy rate constant at the meetings to be held in the rest of the year stands out strongly in the pricing in the money markets, as the tone of bank members’ verbal guidance gradually became “dovish”, the decline in bond interest rates significantly supported the ounce price of gold.

Tightening financial markets could allow the Fed to “watch and see” what happens before taking further action on interest rates, Fed Board Member Christopher Waller said. Atlanta Fed President Raphael Bostic also stated that there is no need for the Fed to continue increasing interest rates unless the decline in inflation stops, adding, “I do not think we need to do anything more about interest rates today.”

Analysts stated that there is a 94% probability that the Fed will keep the policy rate constant in the range of 5.25-5.50%, and that the US 10-year bond interest rate decreased by approximately 17 basis points to 4.6240%.

Stating that gold’s safe haven feature comes to the fore in times of uncertainty, especially in wars, analysts said that gold demand may increase if tension in the region rises.

Silver, one of the safe haven instruments, also completed the week with a 5.2% increase.

Business Investment International Capital Markets Manager Şant Manukyan stated that the movement of gold is naturally attributed to the tension in the Middle East, but this rise is an acceleration created by the decline in interest rates.

Manukyan emphasized that the 10-year bond interest rate in the USA rose to 4.88 before the employment data announced in the USA last week and then dropped to 4.60 levels. He stated that before this, the rise in alternative and real yields was a negative development for gold, but now, on the contrary, the decline in yields has a positive impact on gold.

Manukyan predicted that the war would not have much impact on gold as long as it does not turn into a war between Israel and another state.

Noting that gold may rise if situations such as discussion of another state entering the war or an operation against Iran arise, Manukyan said, “These are geopolitical issues and unpleasant issues that no one knows exactly. We can say this: First the Ukrainian war, then there is an increase in the level of tension in the Middle East, which we can say will be permanent.

Likewise, on the Chinese side, question marks regarding Taiwan continue. If we include some dynamics, such as the USA or the anti-Western bloc increasing the share of gold in their reserves, the geopolitical tension premium will be permanent.

Even if we do not feel the hot war, there are some permanent dynamics that will cause gold prices to accelerate upwards in the medium and long term. But we can say that the decline in bond yields is positive for gold.”

Kelvin Wong, Senior Market Analyst at Oanda, which provides data services in New York, also stated that the rise in the ounce price of gold is linked to the fact that the geopolitical risk premium originating from the Middle East still continues.

Ole Hansen, Head of Commodity Strategy at Saxo Capital, stated that predictions that the Fed may have reached the peak in interest rates and concerns arising from the Middle East are supportive for the ounce price of gold.

Source: AA / Prepared by Irem Yildiz

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