Samer Hasn
Lagos — Gold resumes its decline today after two days of recovery and remains near the $2,615 per ounce level.
Gold’s renewed decline today comes as the US dollar and Treasury yields resume their gains after the correction they suffered last Friday. While this pressure comes mainly from the escalation of concerns about the slow pace of interest rate cuts next year by the Federal Reserve.
These concerns are not new and have surfaced since Donald Trump was announced as the winner of a second term in the White House, as his policies may threaten to revive inflation again.
While they were exacerbated last week with the very cautious tone of Jerome Powell during his speech following the announcement of a quarter-point rate cut. Today, despite the absence of news in the early morning, futures continue to price in a lower and lower probability of another quarter-point cut in January, no more than 8.5%, according to the CME FedWatch Tool, which could also justify gold resuming its losses.
Despite these expectations regarding inflation and interest rates, the economy continues to show resilience and generally adapt to higher rates, as data from last week showed. The economy managed to grow by 3.1% in the fourth quarter, which beat expectations, and service sector growth accelerated more than expected, in addition to better-than-expected figures for building permits and existing home sales.
While continued and accelerating economic growth could also add to the pressure on gold, as it dispels the uncertainty caused by tighter monetary conditions – the economy is adaptive.
On the geopolitical side of the Middle East in particular, I still believe that this factor will gradually take on a diminishing role, which will cause the premium that gold has gained to be removed. The basis of these geopolitical concerns came from the possibility of mutual attacks between Iran and Israel causing critical damage to the flow of goods and energy supplies in the region.
Iran is now facing a severe crisis in generating electricity despite having the necessary gas on its territory. The aging infrastructure along the supply chain is one of the main causes of this crisis, according to The New York Times. The crisis has already caused tens of billions of dollars in damage in light of the disruption that has struck economic activity due to the loss of power.
This crisis came even without direct targeting of this infrastructure by Israel. While officials and media reports previously talked when direct confrontations between the two countries intensified in October about the possibility of targeting oil and gas facilities by Israel as the attacks continued.
Therefore, this energy crisis may help dissuade Iran from any attacks that would drag Israel into causing deeper damage to this dilapidated infrastructure. The expansion of the gas crisis in Iran could cut off supplies to homes for heating in the winter.
The second version of “maximum pressure” that Trump will resort to applying on Iran upon his return to the White House could make Iran weaker economically and less able to engage in regional confrontations. Let’s not forget that closing the Syrian border to Iran could increase the economic pressure on it more than before from the disappearance of one of the markets for selling Iranian products and channels for evading US sanctions.
*Samer Hasn, Senior Market Analyst at XS.com
