Rising Gold Prices Amidst Middle East Tensions as SPDR Gold Trust Continues Disposal


Rising Gold Prices Amidst Middle East Tensions as SPDR Gold Trust Continues Disposal

Despite being buoyed by risk aversion, gold prices remain at a disadvantage as gold exchange-traded funds (ETFs) continue to exhibit a year-long trend of net selling.

Illustration photo – Photo: Bloomberg.

The Rise in Gold Prices Amidst Middle East Tensions and SPDR Gold Trust’s Ongoing Sell-Off

Global gold prices experienced an upswing as concerns among investors escalated over the potential spread of armed conflict in the Middle East. This heightened anxiety followed an attack on US soldiers in the region over the past weekend, leading to an increase of 100,000 VND/tael in domestic gold bar prices on the morning of January 30.

Despite the geopolitical tensions, the substantial gold fund SPDR Gold Trust continued its trend of net-selling gold. Market participants are eagerly awaiting the outcomes of the US Federal Reserve (Fed) meeting.

At the close of Monday’s trading session in the US market, the spot gold price surged by 14 USD/oz, a nearly 0.7% increase compared to the previous week’s close, reaching 2,033.8 USD/oz. However, by 9:00 a.m. Vietnam time on the same day, the spot price of gold in the Asian market had decreased by 2.9 USD/oz compared to the New York session’s close, equivalent to a 0.14% decrease, trading at 2,030.9 USD/oz.

The need for investors to hedge risks intensified following news of the drone attack on US soldiers in Jordan. On Sunday, Iranian-backed rebels carried out the drone attack, resulting in the death of three US soldiers and injuries to at least 34 others in the border area between Jordan and Syria, as reported by the US State Department. This marked the first deadly attack on US forces in the Middle East since the Israel-Hamas conflict erupted in the Gaza Strip last October.

Analyst Jim Wyckoff from the precious metals news site Kitco Metals noted, “This incident has heightened tensions in the Middle East, prompting the demand for gold and silver as a ‘safe haven.'”

The decline in US Treasury yields also contributed to the positive trajectory of gold prices, with the 10-year yield falling below the 4.1% mark. Nevertheless, the strengthening USD exerted devaluation pressure on precious metals. The Dollar Index, measuring the strength of the greenback against a basket of six other major currencies, closed Monday at 103.6 points, compared to 103.5 points the previous week.

Investors exercised caution ahead of the Fed’s initial regular monetary policy meeting of 2023, scheduled for Tuesday and Wednesday. The prevailing expectation in the market is that the Fed will maintain unchanged interest rates during this meeting, with a 97% likelihood, according to CME’s FedWatch Tool.

Jim Wyckoff highlighted, “This Fed meeting will likely provide some signals about when interest rates will decrease and whether the Fed is leaning towards being tough or soft on monetary policy.”

A Reuters survey released on Monday indicated that experts foresee global economic uncertainty and the Fed’s potential move to cut interest rates as factors that could propel gold prices to new record highs later this year.

World gold price developments over the past 10 years. Unit: USD/oz – Source: Trading Economics.

However, at present, gold prices continue to face challenges, including the strengthening trend of the USD and revised expectations for the timing of the Fed’s initial interest rate cut, now postponed from March to May.

Moreover, gold prices encounter a disadvantage as gold exchange-traded funds (ETFs) persist in a year-long trend of net selling. The world’s largest gold ETF, SPDR Gold Trust, conducted a net sale of over 1 ton of gold in Monday’s session, reducing its holding volume to below 855 tons of gold. In the previous week, the fund had a net sale of 5 tons of gold.

At 9:00 a.m., Phu Quy Group listed the price of SJC gold bars for the Hanoi market at 74.4 million VND/tael (buying) and 76.75 million VND/tael (selling). Compared to yesterday morning, the price of SJC gold bars at this enterprise has increased by 100,000 VND/tael at each end of the price.

The Phu Quy brand 999.9 plain round ring is now priced at 63.9 million VND/tael and 65 million VND/tael, an increase of 150,000 VND/tael at each price end.

In the Ho Chi Minh City market, SJC Company quoted the price of gold bars of the same brand at 74.3 million VND/tael and 76.8 million VND/tael for buying and selling, respectively, marking an increase of 100,000 VND/tael compared to the morning.

Simultaneously, the converted world gold price is equivalent to nearly 60.4 million VND/tael if converted at the USD selling rate at Vietcombank, remaining unchanged from yesterday morning. Although the world gold price has increased, the converted price remains constant due to a sharp decrease in the USD/VND exchange rate.

Therefore, in comparison to the converted world gold price, the retail price of SJC gold bars is 16.4 million VND/tael higher, and the gold ring price is 4.6 million VND/tael higher.

Vietcombank quoted the USD price at 24,305 VND (buy) and 24,675 VND (sell) this morning, reflecting a 75 VND decrease at each price compared to yesterday morning.

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