Gold prices surged to a two-week high on Thursday, as investors turned to the precious metal in response to growing concerns over the US government’s expanding debt and weak demand for 20-year Treasury bonds. These factors underscore a diminishing appetite for US assets, prompting investors to seek safer investments.
As of 03:00 GMT, spot gold gained 0.8%, reaching $3,340.53 per ounce, marking its highest level since May 9. Meanwhile, US gold futures rose 0.9%, reaching $3,341.90 per ounce. The US dollar, hovering near a two-week low, further contributed to the rise in gold prices, making the precious metal cheaper for holders of foreign currencies.
A Weaker Dollar and Economic Uncertainty Drive Gold’s Bullish Reversal
Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA, explained that gold’s bullish reversal is driven by two key factors: a weaker US dollar and lingering stagflation risks in the US economy. As investors become more concerned about the stability of the US economy, especially in light of soft demand for US assets, gold’s status as a safe-haven investment has been reinforced.
The Republican-controlled US House of Representatives Rules Committee recently voted to advance a sweeping tax-cut and spending bill proposed by President Donald Trump. This move could lead to a vote on the House floor in the coming hours, adding to the uncertainty surrounding US fiscal policy. The potential for increased government spending, combined with rising debt levels, has made gold an attractive hedge for those worried about inflation and fiscal instability.
Treasury Bonds and Wall Street Jitters Add to Gold’s Appeal
In addition to political developments, the US Treasury Department faced weak demand in a $16 billion sale of 20-year bonds on Wednesday. This soft demand further weighed on the US dollar, as well as Wall Street, where traders were already rattled by Moody’s downgrade of the US’s triple-A credit rating last week. The lackluster bond sale and growing concerns over the US debt have led many investors to reassess their portfolios, pushing them toward more stable assets like gold.
Gold thrives in a low-interest-rate environment, as it does not yield interest or dividends. As fears of a slowdown in the US economy continue to build, gold’s appeal as a safe investment in times of economic and geopolitical turmoil has only increased.
Geopolitical Tensions Further Boost Gold’s Safe-Haven Status
Gold’s appeal has also been reinforced by ongoing geopolitical tensions, particularly in the Middle East. The fifth round of nuclear talks between Iran and the United States is set to take place on May 23 in Rome, according to Oman’s foreign minister. Heightened concerns over potential escalations in these negotiations have added another layer of uncertainty to global markets, prompting further demand for gold as a hedge against geopolitical risks.
Outlook for Gold
With economic uncertainty and geopolitical risks on the rise, investors are likely to continue turning to gold as a safe-haven asset. As the US dollar remains weak and concerns over the US government’s fiscal policies persist, gold could see further upward momentum in the near term. Investors are closely monitoring Treasury bond demand and developments in US fiscal policy, both of which will play a significant role in shaping the direction of the gold market in the coming weeks.
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