Middle East conflict increases demand for safe havens
The escalating conflict between Israel and Hezbollah has been a major driver of gold's recent rally. Investors became more risk-averse after Hezbollah announced it would expand its involvement in the war against Israel. With the escalation of war showing no signs of slowing down, the appeal of gold as a store of value is only increasing. The situation has worsened following the killing of Palestinian militant leaders, with all parties in the region vowing to continue the conflict. In times of profound geopolitical uncertainty, gold's historical role as a safe-haven asset has proven important.
US election and Fed interest rate expectations push gold higher
Geopolitical concerns, along with uncertainty surrounding the US presidential election, are fueling gold's rally. Markets are betting the Federal Reserve could cut rates as early as November, with traders pricing in a 92% probability of a 25 basis point cut, according to CME's FedWatch tool. Loose monetary policy tends to support gold prices, as lower interest rates reduce the opportunity cost of holding non-yielding metals.
The European Central Bank (ECB) also cut interest rates for the third time this year, lowering deposit rates to 3.25%, contributing to the bullish mood. Further rate cuts are expected in December, supporting demand for gold as a hedge against uncertain economic conditions in both the United States and Europe.
Strong economic data brings mixed signals
Despite global uncertainty, economic indicators in the United States remain relatively strong. Retail sales rose 0.4% in September, reflecting strong consumer spending, exceeding expectations for a 0.3% increase. However, there were signs of a downturn in the housing market last month, with both housing starts and building permits decreasing. These mixed signals have led to lower expectations for aggressive rate cuts by the Federal Reserve, but still favor a more dovish outlook, contributing to gold's continued strength.
