Gold prices soar to new record highs; easing recession fears, rate cuts in focus

Gold prices rose strongly Friday, climbing to new highs as persistent expectations of interest rate cuts by the Federal Reserve kept the yellow metal in demand.

At 09:55 ET (13:55 GMT), spot gold rose 1.5% to $2,493.86 an ounce, while gold futures gained 1.6% to $2,533.10 an ounce. 

Both benchmarks are on course for weekly gains of over 2%. Gold heads for weekly gains amid rate cut bets 

Soft inflation data released earlier this week fueled increased bets that the Federal Reserve will cut interest rates in September, although a month-on-month increase in consumer inflation saw traders more geared towards a 25 basis point over a 50 bps cut.

Stronger-than-expected retail sales data also inspired more confidence in the U.S. economy, while denting expectations for a bigger rate cut.

But the prospect of lower rates still bodes well for gold, given that it decreases the opportunity cost of investing in non-yielding assets.

Persistent concerns over an all-out war in the Middle East, between Iran and Israel, also kept some safe haven demand for gold in play. Buy gold as Middle East hedge - Alpine Macro 

Investors should consider buying gold as geopolitical tensions in the Middle East are likely to escalate in the coming months, according to a recent note from Alpine Macro.

The research firm warns that Iran, feeling pressured to reestablish deterrence, may soon launch limited attacks on Israel, either directly or through proxies.

They note that while Western, Arab, and Russian influences are currently holding Iran back, the situation remains volatile.

Alpine Macro suggests that Israel’s threat to retaliate disproportionately, potentially targeting Iran’s nuclear facilities or oil infrastructure, could be a significant factor in deterring Iran from a full-scale assault.

They also state that there’s a “tail risk” that Iran might take an unexpected action, such as declaring itself a nuclear power, which would dramatically alter the regional balance of power and introduce further risks.

The note emphasizes that the Middle East conflict has a “strong chance of escalating in the next 6-9 months.”   Copper edges lower, but Escondida strike brings weekly gain

Among industrial metals, copper prices fell slightly on Friday, but were set for their first weekly gain in six as a strike in the world’s biggest copper mine presented a tighter outlook for supplies. 

Benchmark copper futures on the London Metal Exchange fell 0.4% to $9,105.50 a ton, while one-month copper futures fell 0.7% to $4.1218 a pound. Both contracts were up more than 2% for the week, breaking a five-week losing spree. 

Workers in Chile’s Escondida mine, which accounts for 5% of global copper supplies, went on strike this week on disputes over compensation. 

Any extended disruptions in production at Escondida presents a tighter outlook for global copper supplies, which is expected to support prices.

But bigger gains in copper were held back by persistent concerns over sluggish copper demand, especially after a slew of weak economic readings from top copper importer China.

(Ambar Warrick contributed to this article.)

Source: Investing.com