Gold at record high, oil rises on geopolitical tensions

by Jonathan Adams

The precious metal extended its strong record-breaking run, while oil prices rose to five-month highs

Gold prices hit another historic high Tuesday and oil extended gains over growing tensions in the Middle East, while stocks dropped as traders worried whether the rally has run its course.

The precious metal gained as much as $2,279.41 per ounce to extend its strong record-breaking run, led also by the probability of interest-rate reductions in the coming months.

Oil prices rose to five-month highs as Iran warned Israel that it will retaliate for an air strike on its consular annex building in Damascus, raising concerns of a spillover of the Middle East war across the region.

Gold’s historic safe haven appeal has been re-ignited by geopolitical factors which includes the current crisis in the Middle East, according to Rabobank analyst Jane Foley.

The possibility of an escalation in the Middle East given current headlines regarding Iran’s accusations of Israeli strike on a consulate building in Syria are underpinning gold prices today, she said.

Gold prices are increasing as traders anticipate interest-rate cuts by the ECB, BoE and the US Fed in June as inflation is slowing, analysts said.

When interest rates drop, gold becomes comparatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment, according to City Index analyst Matthew Weller.

In equities trading, New York’s main indices dropped, a day after a stronger-than-expected reading of US manufacturing and prices paid triggered questions about the Federal Reserve’s timeline for reducing interest rates.

US Treasury bond yields, a proxy for interest rates, jumped again as analysts pushed back expectations for Fed interest rate cuts.

On Tuesday, a senior Fed official said that she recently raised her forecast for interest rates over the longer term.

I raised my estimate to reflect the continued resilience in the economy despite high nominal interest rates and higher model-based estimates of the equilibrium interest rate, said Cleveland Fed president Loretta Mester.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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