November 28, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS.com.
Gold continues to recover for the third consecutive day, holding above $2,640 per ounce as it seeks to pare back its steep losses from Monday.
Gold’s gains come despite the stubbornness shown by inflation in the United States, according to the Federal Reserve’s preferred gauge, which has kept hopes for a rate cut in the coming year dim. Uncertainty around global economic and geopolitical factors appear to be keeping the yellow metal on track to recover its gains, in addition to the ongoing correction in Treasury yields.
After the growth of the core Personal Consumption Expenditures (core PCE) Price Index accelerated in October to 2.8% year-on-year from 2.7% and a stronger-than-expected acceleration in personal income growth to 0.6% month-on-month, gold continued to advance yesterday and today. This may be due to the decline in both short- and long-term Treasury yields, as yesterday’s data did not significantly change market expectations for the Fed’s next two meetings, giving gold some room to recover.
Markets still price in a 25bp rate cut in December at a greater than 60% chance, while the probability of a repeat in January remains at just 15%, according to the CME FedWatch Tool.
Higher-for-longer interest rates are a negative for gold. This is true and has already been reflected once again with Donald Trump’s election as president and the return of concerns about rising inflation and keeping rates high for a long time. However, concerns about the potential impact of trade wars and conflicts that do not seem to be calming down in either Europe or the Middle East remain on investors’ minds.
In the Middle East, there has been some optimism with the ceasefire agreement reached in Lebanon between Hezbollah and Israel. Even before the announcement of this truce, doubts were raised about its sustainability – and skepticism about the possibility of reaching it until the last moments of the announcement – in addition to its ability to serve as the seed for a broader settlement of the conflict in the region.
Since the news poured in abundantly earlier this week about reaching an agreement in Lebanon, there are still missing links in the chain of this scene. The most important of these links is the position of the Israeli far-right coalition, which still refuses to stop the war on any of the fronts, which may be responded to by withdrawing from the government, which would harm Netanyahu’s interests.
While the extremist National Security Minister Itamar Ben-Gvir said that this agreement is a serious mistake. Even thought, the coalition did not collapse. Therefore, this agreement may be a temporary cessation of fighting, but it may not be the end of the war there, which is what the far-right rejects.
What reinforces this hypothesis is Netanyahu’s statement upon announcing the agreement, where he said that the ceasefire will serve to shift the focus more towards Iran and Gaza – not a prelude to a broader truce.
It also does not seem likely that the Lebanon agreement will lead to a push towards a cessation of fighting in Gaza. This is in light of the unwillingness of either Hamas or Israel to make concessions on the outstanding points of contention, especially with regard to withdrawing from the southern axes of the Strip, in addition to Israeli Prime Minister Benjamin Netanyahu’s bet on giving him absolute freedom in the region with Trump’s return on January 20, in addition to the extreme right’s refusal to end the war, according to the Wall Street Journal.
However, the most that can be achieved now is a temporary cessation of the conflict in Gaza, which is currently being studied in light of the momentum of the Lebanon agreement, according to The New York Times.
As for calm on the Ukrainian front, it still seems much more out of reach than Trump might imagine, who pledged to end the war on his first day. Former Ukrainian Foreign Minister Dmytro Kuleba said in an interview with Politico that he has no hope that Trump will be able to mediate a peace agreement. Kuleba believes that Russian President Vladimir Putin is not the mood to reach an agreement that might reduce his gains in the regions that were annexed to the Russian Federation, and in return he believes that it is unreasonable for Zelensky to be able to sign an agreement to give up those lands.
Finally, the trade wars that the world is heading towards with the return of Trump are causing increased uncertainty about the path of the global economy, which is a support for gold.
S&P Global had downgraded its expectations for Chinese economic growth for the years 2025 and 2026 to 4.1% and 3.8%, respectively. This is because the trade war that Trump is heading towards escalating with China will lead to pressure on external demand while it is still facing difficult conditions for internal demand.
This damage may not be limited to China alone or the European Union, Mexico and Canada, which will be primarily targeted by this trade war.
Internation trade theorist Paul Krugman believes in an opinion piece in The New York Times that these protectionist measures may lead to “crony capitalism.” This is because the president has the authority to grant exemptions to American companies to bypass high tariffs. Krugman believes that Trump will continue to grant these exemptions based on partisan considerations, and based this on the results of research that found that in the Trump’s first term companies with connections to the Republican Party are more likely to obtain these exemptions than those with Democratic leanings.
Accordingly, Krugman believes that this practice would drag on economic growth in the long run, in addition to the emphasis of the prominent economist on the harm that would be inflicted on the American consumer, which Trump denies.
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