Gold prices (XAU/USD) surged to over a five-month peak, approaching $3,425 during Asian trading on Friday, driven by escalating geopolitical tensions in the Middle East and growing market expectations for Federal Reserve interest rate cuts.
The rising uncertainty stems from recent developments in the Middle East, where Israeli Defense Minister Israel Katz announced late Thursday a “preemptive strike against Iran,” prompting the declaration of a state of emergency as Israel braces for retaliation.
Israel’s Prime Minister Benjamin Netanyahu reiterated early Friday that the country’s objective is to neutralize the nuclear threat posed by Iran. Netanyahu warned that failure to do so could trigger a regional arms race among Middle Eastern nations seeking nuclear capabilities. He emphasized that the operation would continue for “as many days as it takes,” according to CNN.
Market analysts point to heightened geopolitical risks as a key driver of gold’s upward momentum. Peter Grant, vice president and senior metals strategist at Zanier Metals, noted, “Gold is up for the second straight day, largely on heightened geopolitical risks. If gold clears $3,400 again, minor hurdles at $3,417 and $3,431 remain — but a breakout to new all-time highs looks likely ultimately.”
Adding to gold’s appeal, softer-than-expected U.S. Producer Price Index (PPI) inflation data released Thursday have boosted the likelihood of a Federal Reserve rate cut. This data has weakened the U.S. dollar, which typically supports dollar-denominated commodities like gold.
Market participants now anticipate a 25 basis point rate reduction by the Fed in September, with a further cut likely in October. Prior to Thursday’s inflation data, traders had expected the next rate cut to be delayed until December.
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