Gold hits record peak, oil rises on geopolitical tensions

AFP , Tuesday 2 Apr 2024

Gold prices nailed another historic peak Tuesday and oil extended gains over rising tensions in the Middle East, while stocks wilted as traders worried whether the rally has run its course.

Gold
Gold prices hit a record $2,277.02 per ounce. AFP

 

The haven precious metal advanced as high as $2,277.02 per ounce to extend its blistering record-breaking run, driven also by the prospect of interest-rate cuts in the coming months.

Oil gained more ground as Iran warned its arch-foe Israel that it would retaliate for a deadly air strike on its consular annex building in Syria's capital Damascus, raising fears of a spillover of the Gaza war across the region.

"Gold's historic haven appeal has been re-ignited by geopolitical factors which includes the current crisis in the Middle East," said Rabobank analyst Jane Foley.

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

Gold prices are rising as traders anticipate interest-rate cuts by the European Central Bank, Bank of England, and the US Federal Reserve in June as inflation is slowing, analysts said.

"When interest rates fall, gold becomes relatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment," said City Index analyst Matthew Weller.

Stocks retreat 
 

In equities trading, New York's main indices fell, a day after finishing mixed on stronger-than-expected readings of US manufacturing and prices paid sparking questions about the Fed's timeline for cutting interest rates.

The Institute for Supply Management's gauge of factory activity showed expansion for the first time in March, after 16 straight months of contraction.

But more concerning for investors were figures showing that prices paid hit their highest mark since July 2022, which fanned worries that inflation could start to creep back up and complicate the Fed's plans to cut rates.

Markets are now pricing in about 65 basis points of cuts this year, lower than the Fed's guidance of 75 points, and yields on US government bonds have risen.

Market analyst Fawad Razaqzada at City Index and FOREX.com said that concerns about the rally that has seen the S&P 500 rise around 28 percent since October has prompted some profit-taking.

"Following such a big move, the risks of a correction are high, especially when you consider for example that US oil prices are pushing $85 per barrel and governments are facing rising costs of servicing their debt as yields climb," he said.

In Europe, London briefly broke above 8,000 points to enter record closing territory thanks to higher oil prices, but gave up its gains and ended the day lower.

Paris and Frankfurt also fell in subdued deals following a four-day Easter shutdown.

In Asia, Hong Kong stocks rallied as Asian traders also returned from an extended weekend break to forecast-beating Chinese factory data that lifted hopes for the world's number-two economy, though other Asian markets were mixed.

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