Gold prices stabilized after being caught in Monday’s global market turmoil, where it experienced a significant slump as traders liquidated holdings to cover potential margin calls.
In the previous session, spot gold plunged by as much as 3.2%, marking the steepest intraday decline since early June, before recovering some of its losses. The price of gold fluctuated within a $90 range as both shares and commodities took a hit.
Despite a rebound in most Asian equity markets on Tuesday, continued volatility in global equity markets is expected. This volatility may attract new buyers to gold. Although gold is traditionally seen as a safe haven, its price often retreats during intense market disruptions, typically rebounding afterwards.
“Gold positions currently provide the highest hedging value across commodities,” Goldman Sachs Group Inc. analysts, including Daan Struyven, noted. The analysts maintained their forecast that gold will rally to $2,700 an ounce by 2025. They highlighted gold’s role as a hedge against geopolitical risks such as wars, trade tariffs, and concerns over U.S. sovereign debt.
Gold has risen approximately 17% this year, reaching an all-time high in July. This surge is largely driven by expectations that the Federal Reserve will shift towards monetary easing. Lower borrowing costs tend to benefit gold, as it does not yield interest.
Concerns about a potential recession in the U.S. have led swaps traders to anticipate at least five quarter-point rate cuts by the Federal Reserve in 2024, with a 16% chance of an emergency cut before the next scheduled meeting on September 18.
Increased purchases by central banks and Asian consumers have also supported gold prices. Additionally, rising geopolitical tensions in the Middle East, with Israel preparing for a potential attack from Iran and regional militias, have further bolstered the demand for gold.
As of 9:18 a.m. in Singapore, spot gold was relatively unchanged at $2,414.39 an ounce. Meanwhile, the Bloomberg Dollar Spot Index edged higher after a 0.3% decline on Monday. Silver gained 0.7% following its 4.5% drop, and both platinum and palladium saw price increases.
