Gold prices continued to climb on Thursday, as rising tensions between Russia and Ukraine sparked renewed safe-haven demand for the precious metal. This rise came despite a stronger dollar, which had been putting pressure on commodities. Gold’s performance over the past few days is a reflection of the market’s sensitivity to geopolitical risks and the ongoing uncertainty in global markets.
Gold Sees Fourth Consecutive Day of Gains
Gold prices edged higher for the fourth consecutive session, recovering from a significant dip that had seen the metal fall to a two-month low. However, the pace of gold’s recovery appeared to slow, with its rally coming under pressure from the strength of the U.S. dollar. As investors digested expectations surrounding U.S. interest rates, the yellow metal’s ascent was tempered by the dollar’s resilience.
By late afternoon on Thursday, spot gold had gained 0.7%, reaching $2,670.06 per ounce. Gold futures for December delivery saw a slightly larger gain of 0.8%, trading at $2,671.90 per ounce. While these increases were significant, they were modest compared to gold’s earlier peaks, suggesting that broader market dynamics were at play.
Russia-Ukraine Conflict Drives Safe Haven Demand for Gold
The primary driver behind gold’s recent rise was the escalating conflict between Russia and Ukraine. Following the United States’ authorization of long-range missile strikes for Kyiv, tensions in the region heightened considerably. Russia responded with aggressive rhetoric, lowering its threshold for nuclear retaliation and warning of an impending escalation. In retaliation, Ukraine launched a series of missile strikes against Russian territories, utilizing Western-made weapons.
This intensifying conflict fueled concerns over a potential escalation, pushing investors toward gold as a safe-haven asset. Traders sought refuge in the precious metal, which is traditionally viewed as a store of value during times of geopolitical instability and financial uncertainty.
The surge in demand for gold helped it recover from the sharp drop it had experienced over the previous two weeks. This period had seen the metal retreat from its record highs as market sentiment shifted, but the new wave of geopolitical risks provided fresh momentum for bullion.
Central Bank Demand for Gold Strengthens Market Outlook
Central banks continue to play a pivotal role in supporting gold prices, a trend that shows no signs of slowing. According to Samantha Dart, co-head of Global Commodities Research at Goldman Sachs, the ongoing demand for gold from central banks is expected to persist, buoyed by the geopolitical risks surrounding the world. Dart suggested in a Bloomberg interview that gold prices could reach $2,000 per ounce by the end of 2025, driven in part by this continued demand.
Gold has long been favored by central banks as a reserve asset, particularly during periods of economic uncertainty. As the world faces persistent geopolitical and financial risks, the appetite for bullion among these institutions is expected to remain strong, supporting prices in the longer term.
U.S. Dollar and Interest Rate Expectations Pressure Gold’s Recovery
Despite the surge in demand for gold driven by geopolitical tensions, the precious metal faced ongoing headwinds from the strength of the U.S. dollar. Over the past two weeks, gold had been under significant pressure, partly due to a rebound in risk appetite following Donald Trump’s victory in the 2024 U.S. presidential election. Trump’s win led investors to reassess expectations for U.S. monetary policy, with traders anticipating that higher interest rates could remain in place for an extended period.
The stronger dollar, which typically moves inversely to gold, made the precious metal less attractive to investors holding other currencies. By Thursday, the dollar had reached near a one-year high, dampening gold’s upward momentum. Higher U.S. Treasury yields also contributed to the pressure on gold, as they increase the opportunity cost of holding non-yielding assets like bullion.
Federal Reserve Rate Cut Expectations Dampen Gold’s Upside Potential
Another significant factor limiting gold’s rally is the ongoing debate over U.S. interest rate cuts. Recently, members of the Federal Reserve have signaled a more cautious approach to reducing rates, citing concerns about inflation and the level of the neutral interest rate. Chicago Federal Reserve President Austan Goolsbee remarked on Thursday that while he still anticipates lower rates in the future, the pace of rate cuts may need to slow, given the uncertainty surrounding the ultimate endpoint of the Fed’s rate-cutting cycle.
This cautious tone from the Fed has led to a recalibration of market expectations. Traders have scaled back their bets on aggressive rate cuts, which in turn has supported the dollar and Treasury yields. CME FedWatch data indicated that traders now see a 57.3% probability of a 25 basis point rate cut in December, down significantly from an 85.7% chance just a week ago. Meanwhile, the likelihood of the Fed holding rates steady has increased, further curbing gold’s upside potential.
As a result, the precious metal’s gains remain capped. The prospect of higher rates increases the opportunity cost of holding gold, which does not offer any yield, making it less attractive compared to other assets that generate income.
Other Precious Metals Struggle to Maintain Momentum
While gold saw some gains on Thursday, other precious metals were struggling to maintain momentum. Platinum futures rose by a modest 0.3%, trading at $968.65 per ounce. However, the metal remains far from its highs and has struggled to sustain upward movement over the past two weeks.
Silver futures, on the other hand, saw a decline of 0.4%, settling at $30.870 per ounce. Like platinum, silver had also been under pressure in recent days, despite the broader surge in safe-haven demand for precious metals.
Among industrial metals, copper futures experienced a decline on Thursday. Benchmark copper on the London Metal Exchange fell 0.6% to $9,034.00 per ton, while December copper futures were down by 1.1%, trading at $4.1108 per pound. Copper’s decline is reflective of the broader pullback in industrial commodities, with market participants reassessing their economic outlook amid concerns over the global economy.
Market Outlook for Gold and Precious Metals
Looking ahead, the market for gold and other precious metals will likely remain volatile, influenced by the evolving geopolitical situation in Eastern Europe, shifting expectations around U.S. interest rates, and the ongoing demand for bullion from central banks.
Gold’s ability to maintain its upward trajectory will depend largely on how tensions between Russia and Ukraine evolve and whether these risks lead to a broader flight to safety in global markets. At the same time, the interplay between the U.S. dollar and interest rate expectations will continue to play a significant role in shaping the direction of the precious metals market.
As geopolitical risks persist and central banks maintain their appetite for gold, the outlook for the precious metal remains favorable over the longer term, though short-term fluctuations will likely continue as market dynamics shift. Investors will need to remain vigilant in monitoring both global events and U.S. monetary policy for further signals that could influence gold prices in the months ahead.
Related topics: