Gold performance vastly improved Thursday, breaching the $1,800 per ounce mark amid the latest geopolitical tensions between the United States and China. Gold rallied 1.5% to $1,790.65 an ounce, marking its best performance in about four weeks. US gold futures did even better, climbing 1.7% to $1,807 an ounce.
Prices bounced back after US House Speaker Nancy Pelosi visited Taiwan, which boosted demand for the precious metal. Her visit prompted mainland China to retaliate by firing several ballistic missiles around Taiwan. Rising US unemployment, however, could pull prices back down and disrupt this momentum.
December gold futures gained $33 on Thursday, hitting a daily high of $1,812 per ounce.
Taiwan at the Center of US-China Tensions
Taiwan sits at the center of the latest geopolitical tension between the two superpowers. Beijing claims the small nation as its own province. Markets shook after communist China launched several ballistic missiles around the Taiwan strait as retaliation for Pelosi’s state visit. Live-fire drills followed too, staged just 12 miles from Taiwan as part of broader military exercises.
Earlier, China had warned the US that the relationship between the two countries would suffer if Washington insisted on allowing Pelosi’s visit. Beijing refuses to recognize Taiwan as a sovereign country and insists the island belongs to China.
Officials in Beijing reiterated that the US will bear responsibility and pay the consequences for undermining its sovereign security interests. Hua Chunying, China’s foreign ministry spokesperson, said Washington’s actions would stain the US-China relationship.
Han Tan, an analyst for the Exinity Group, said China’s aggressive tone in response to the House Speaker’s visit created a typical haven play in recent sessions. Investors picked up precious metals and Treasuries alongside the US Dollar and Japanese Yen.
Marc Chandler of Bannockburn Global Forex believes the situation will keep developing into the weekend. The chief market strategist added that Beijing continues to harass Taipei, while US President Joe Biden urges the Senate to recognize Taiwan as a “major non-NATO ally.” Biden also wants Taiwan to gain representation in a major international forum.
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Current geopolitical tensions have greatly boosted gold’s performance. A stronger currency had earlier triggered a selloff to $1,700 per ounce last month. A strategist at TD Securities said Thursday that a hold at $1,789 per ounce would offer a boost. Breaking above that level, the analyst added, could shift momentum further.
US Economy Halted Stellar Gold Performance
Gold’s performance has picked up over several weeks, but upcoming US employment reports could send prices back down to earth. Economists consider the employment report the biggest obstacle facing the precious metal right now. They expect the US economy added roughly a quarter of a million jobs last July. June saw more than 372,000 jobs created. On Friday, the Bureau of Labor Statistics reported the country created more than 578,000 jobs in January and expects 250,000 more jobs ahead.
Hawkish Fed speakers also drove gold’s better performance this week. Their comments pushed back against the idea that the central bank might turn away from rate hikes.
Mr. Win Thin of BBH Global Currency Strategy said, “One after the other, they stuck to the script that has been established. What we are seeing are coordinated and well-crafted communication efforts by the Fed.”
The analyst added, “It is meant to leave no doubt as their intent to keep raising rates until inflation eventually goes down, regardless of the cost to growth and employment.”
What’s Next for Gold Prices?
Gold’s performance peaked at more than $2,000 per ounce last March as Russia invaded Ukraine. That invasion prompted investors to seek safe-haven assets like gold. As the war has dragged on, though, interest in the precious metal as a safe haven has waned somewhat in recent months. This likely reflects fading fears of a much larger-scale war.
Mike McGlone of Bloomberg Intelligence said gold looks more likely to continue its enduring upward trend and breach resistance at $2,000 an ounce than to sustain levels below $1,700 an ounce. “The most aggressive Fed tightening measures this year since the 80s has contained gold, and it is only a matter of time before rate hikes go down and let gold continue its path of little resistance upward.”
Analysts Weigh In on the Gold Trade
Other analysts, like Jim Cramer of CNBC, said this week offers the best time to get into the gold trade. He pointed to gold’s vastly improved performance amid this bizarre, tumultuous period for precious metals like gold and silver.
Overall, the gold market is testing resistance again as prices hit $1,800 an ounce. Political tension between Beijing and Washington is driving increased demand for gold as a safe-haven metal.
Pelosi’s visit angered China and once again triggered the market, improving gold’s performance. Meanwhile, the ongoing war between Russia and Ukraine has worsened rising inflation, pushing the global economy toward a record recession as food supplies dwindle and fuel prices climb at an alarming rate. Vladimir Putin, Russia’s president, has even sanctioned Western countries by limiting, and in some cases cutting off, oil and gas supplies, threatening an energy crisis in Europe.
An official at the ETF Investment Strategy said the Federal Reserve has begun hiking interest rates aggressively, putting pressure on gold prices as a safe-haven metal. Investors remain wary about how this will affect gold’s performance going forward.
