Today, gold recorded gains of about 1% at the beginning of the new week’s trading. Spot gold prices rose to the level of $1854 per ounce, and COMEX gold futures rose to the level of $1868 per ounce as well, at the peak of Monday’s rises.
These rises in gold markets came with the sudden escalation of military actions in the Middle East last Saturday morning.
While these rises in gold prices may be temporary and will not last long as long as the current conflict remains within its geographical scope and does not cause an expansion of military actions that may disrupt maritime navigation in the Middle East or affect energy supplies.
While these rises became after a series of sharp losses for gold, which pushed it to the lowest levels since last March, after a series of data from the US economy, which fueled market expectations that the Federal Reserve would raise interest rates for a final time before the end of this year.
Although these expectations are still weak and unlikely, gold has continued to decline throughout the past week. Even if we do not witness another interest rate hike, the markets expect them to maintain their record high levels for a longer period than expected during the coming year, with continued inflationary pressures and the flexibility of the labor market.
I think that with interest rates reaching their peak, it may confirm to the markets that the bond market has reached its final bottom and that it is time to enter and invest in U.S. bonds, which enjoy yields that we have not seen since 2007, and this in turn may put more pressure on gold in the future despite stopping interest rates from rising.
We have already begun to see this with the continued inflows into bond exchange-traded funds (ETFs) last September, despite the record declines in the prices of these funds. Bond ETFs recorded inflows of about $6.7 billion last September, the highest level since March.
While this came with more outflows from gold ETFs. We have seen a continuation of negative net flows for the fourth month in a row for two of the largest physical gold ETFs, SPDR Gold Trust (GLD) and iShares Gold Trust (IAU), which recorded outflows of more than $2 billion during September and about $445 million so far during this October.
This negative sentiment towards gold ETFs comes with the trend towards return-generating assets.
We also saw a further decline in gold market sentiment last Friday, with a further decline in the number of open interests for gold futures contracts in the Commitments of Traders (COT) report for the third week in a row to 431,226 positions, and this level is slightly close to the lowest levels for this year.