Gold Surges to One-Week High in Mid-January, Sustains Above $2,000 per Ounce

Gold prices hit a one-week peak in mid-January, buoyed by safe-haven buying due to an escalation of the conflict in the Middle East, and by prospects for U.S. interest rate cuts in 2024.

Gold was up 0.67 percent at $2,048.92 per ounce on January 12.

It was a strong start for the gold market in the new year. Gold prices rose 15 percent in 2023 to reach $2,078 per ounce, the highest annual close on record, according to the World Gold Council.

Gold prices rose in the second week of January due to U.S.-led air strikes on Iran-backed Houthis in retaliation for their attacks on Red Sea shipping in response to the Israel-Hamas war.

Gold prices can rise during periods of heightened geopolitical crisis as the precious metal is seen as a safe haven.

Gold was also supported by overwhelming expectations of U.S. rate cuts in March as the world’s largest economy appears to have gained control of inflation after negative U.S. producer price index figures, and previous data showing a falling trend in consumer prices last year.

Although gold has managed to hold its own in the first two weeks of 2024, HSBC noted that its precious metals team sees the market as overstretched and is expected to decline as higher prices take their toll on physical demand, weighing on jewellery and bullion sales, Kitco News reported.

The bank’s currency analysts said markets could be too aggressive in pricing in expected rate cuts this year. If the market proves to be too optimistic on easing, it could provide new bullish momentum for the U.S. dollar. That could weigh on gold prices, as the yellow metal is denominated in dollars.

The pound remains strong against the dollar, while bets are on for the U.S. Federal Reserve to cut rates this spring, while the Bank of England may start cutting rates later, around May or June.

A key focus will be on risks of recession in the UK, after data showed the British economy shrank in October.

Supported by some of the highest interest rates among developed economies, the pound was one of the best-performing currencies against the dollar in 2023, with a rise of 5.2 percent.

A relatively strong pound against the dollar, could make gold more affordable to UK-based gold savers, especially if gold prices retreat back towards $2,000 per ounce.

But if the Middle East conflict extends, gold prices could rise and build on their gains above $2,000 per ounce due to bullion’s safe haven appeal.