Gold performance vastly improved and breached the $1,800 per ounce mark Thursday amid the latest geopolitical tensions between the United States and China. The price of gold rallied by 1.5% to $1,790.65 an ounce, its best gold performance in about four weeks. US Gold futures had a better performance at 1.7% to $1,807 an ounce.
The price of gold bounced back after the visit of US House Speaker, Nancy Pelosi to Taiwan, boosting the demand for the precious metal. Her visit however resulted in retaliation from mainland China which fired several ballistic missiles around Taiwan. But, unemployment back in the US could pull the price back, disrupting the momentum it enjoyed.
The December gold futures grew $33, Thursday, hitting the daily high of $1,812 per ounce.
The center of the latest geopolitical tension between the two giants is the small country of Taiwan which China claimed as its province. The market was shaken after communist China launched several ballistic missiles around the strait of Taiwan as retaliation for Pelosi’s state visit. China likewise conducted various aggressive military exercises which included live-fire drills just 12 miles from Taiwan.
Earlier, China warned the US that the relationship between the two countries would be affected if the latter insists on having Pelosi visit Taiwan. China does not recognize Taiwan as a sovereign country and stresses that it belongs to the country.
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China reiterated that the US will bear the responsibility and will pay the consequences of undermining their sovereign security interests. Hua Chunying, China’s foreign ministry spokesperson said that the action of the US will stain the US-China relationship.
Han Tan, an analyst for the Exinity Group said that the aggressive tone coming from China in response to the house speaker’s visit to Taiwan has made for a typical haven play in recent sessions, with the precious and Treasuries picking up together with US Dollar and Japanese Yen.
Marc Chandler of Bannockburn Global Forex believed that the current situation will continue to develop going into the weekend. The chief market strategist added that Beijing continues to harass Taipei while US President Joe Biden urged the US senate to recognize Taiwan as a “major non-NATO ally.” Biden also pushes that Taiwan must be allowed to be represented in a major international forum.
The current geopolitical tensions have greatly improved gold performance plus the stronger currency triggered a selloff to $1,700 per ounce last month. A strategist at TD Securities said on a Thursday that it would be a boost should the price hover at $1,789 per ounce. The analyst further said that going over the mentioned current gold performance could turn a shift in momentum.
US Economy Halted Stellar Gold Performance
The gold performance is picking up after several weeks, employment reports in the US however could send the price of gold back to terra firma. The employment report is deemed as the biggest obstacle to the performance of the precious metal. Economists in the country are looking to have an additional quarter of a million jobs last July in order to boost the economy. Last June, more than 372,000 jobs were created. Friday saw the Bureau of Labor Statistics handling out reports that the country managed to create more than 578,000 jobs last January and are expecting to have 250,000 more jobs.
Hawkish Fed speakers were also seen as one of the driving forces which led to better gold performance this week. This was so by pushing against the sentiment of the country’s central bank turning away from rate hikes.
Mr. Win Thin of the BBH Global Currency Strategy said, “One after the other, they stuck to the script that has been established. What we are seeing are coordinated and well-crafted communication efforts by the Fed.”
The Analyst further added, “It is meant to leave no doubt as their intent to keep raising rates until inflation eventually goes down, regardless of the cost to growth and employment.”
What is next for the gold performance?
Last March 2022, the performance of gold peaked at more than $2,000 per ounce as Ukraine was being invaded by Russia. The invasion of Ukraine prompted investors to seek safe-haven assets like gold. but as the war ravages on, the interest in the precious metal as a safe haven somewhat waned over the recent months. This might probably be the fact that a much larger scale of war has decreased.
Mike McGlone of Bloomberg Intelligence said that the metal looks more likely to continue its enduring upward trend and breach resistance at $2,000/ounce against sustaining lower than $1,700 per ounce. “The most aggressive Fed tightening measures this year since the 80s has contained gold, and it is only a matter of time before rate hikes go down and let gold continue its path of little resistance upward.”
Other analysts like Jim Cramer of CNBC said that this week is the best time to get into the gold trade as gold performance has vastly improved, thanks to the bizarre although tumultuous period for precious metals like gold and silver.
Overall, the gold market is once again trying resistance as the price of the precious metal hit $1,800/ounce due to the political tension between Beijing and Washington, increasing the demand for gold as a safe haven metal.
The risk surrounding the visit of Pelosi irked China, and this has once again triggered the market causing gold performance to improve. The ongoing war between Russia and Ukraine exacerbated and aggravated the rising inflation, pushing the global economy to a record recession as food supplies and fuel prices rose at a very alarming rate. Russia’s president, Vladimir Putin even sanctioned the Western countries by limiting if not cutting off the supply of oil and gas, threatening the energy crisis in Europe.
An official of the ETF Investment Strategy also said that the Federal Reserve has begun hiking interest rates aggressively putting pressure on the price of gold as a safe-haven metal. This affects the gold performance which investors are wary about.