Gold off 14-week low as geopolitical risks overshadow rate hike outlook

Key points

Spot Gold gained for a second straight day on Monday, as geopolitical developments that unfolded in Russia this weekend prompted some market players to bolster their holdings of the safe haven metal.

Heavily armed Russian fighters of the Wagner group seized the city of Rostov and advanced on Moscow seeking to remove Russian military leadership in charge of the Ukraine war.

The mercenaries withdrew to their bases late on Saturday in exchange for guarantees for their safety, while their leader, Yevgeny Prigozhin, will be exiled to Belarus under a deal brokered by the country’s President Alexander Lukashenko.

Those events seemed to have overshadowed the bearish effect on Gold stemming from an outlook of rising interest rates.

Last week, the precious metal came under pressure after a series of hawkish remarks by Federal Reserve officials, including Chair Jerome Powell, indicating more tightening ahead to rein in sticky inflation.

Markets are now pricing in a 72% chance of a 25 basis point interest rate increase at the Fed’s meeting in July, while rate cuts are expected as early as 2024, according to CME’s FedWatch tool.

Rising interest rates tend to weigh on the yellow metal’s appeal, as they translate into a higher opportunity cost of holding Gold.

“The market is somewhat lukewarm about fully pricing in two hikes and … we have found some additional support down towards that $1,900 psychological level,” Ole Hansen, head of commodity strategy at Saxo Bank, was quoted as saying by Reuters.

Meanwhile, last Friday’s CFTC data showed that speculators had increased their net long position in COMEX Gold by 1,322 to 94,626 during the week ending June 20th.

As of 12:45 GMT on Monday Spot Gold was gaining 0.60% to trade at $1,932.75 per troy ounce. Last Friday the precious metal went down as low as $1,910.21 per troy ounce, which has been its weakest price level since March 16th ($1,907.56 per troy ounce).

Gold Futures for delivery in August were gaining 0.68% on the day to trade at $1,942.65 per troy ounce, while Silver Futures for delivery in July were up 1.96% to trade at $22.793 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging down 0.21% to 102.648 on Monday. Last Friday, the DXY went up as high as 103.166, which has been its strongest level since June 15th (103.375).