Although geopolitics does not completely dominate financial markets at the moment, it does add some spice, especially for safe-haven assets such as gold, which once again broke records.
The sudden death of Iranian President Ibrahim Raisi in a plane crash has triggered a further surge in demand. Reports suggest that the news has heightened the sense of geopolitical risk.
In particular, there is concern that efforts to ease tensions between Tehran, Washington, and Israel will lose steam. But that is the optimistic scenario. In the gloomier one, if it turns out that a third party had a hand in the disaster, we could see even tougher action.
So, is the gold price poised for further upside?
Even without further geopolitical setbacks, there seem to be plenty of plans for the precious metal to keep rising, including investors betting on two rate cuts this year.
It is worth keeping an eye on this week's packed economic agenda to see to what extent these hopes are feasible.
In particular, Chairman Powell, Governor Waller and Vice Chairman Jefferson are scheduled to speak. Their views on inflation and monetary policy could shake markets.
In addition, the minutes of the May 1 FOMC meeting will be released. It will be interesting to see if there is talk of a possible cut in July or, at the very least, September.
If the Fed minutes are bearish, it could once again push risk assets higher, along with XAUUSD.
What else could be driving gold?
The appetite of central banks for the possibility of a fractured global economic and financial order. Simply put, regulators in all countries are protecting themselves from politics.
They see precious metals as "politically neutral safe havens that can be kept at home and protected from sanctions or confiscation."
So, it is not surprising that in the first quarter of 2024, central banks collectively snapped up 290 tonnes of gold, the best start to a year on record.
Major buyers include Turkey, India, Russia, and, of course, China. Analysts at JPMorgan expect central banks to maintain their heavy buying this year.
What price levels could we reach?
Although the global trend for precious metals is upward for the above reasons, guaranteeing a rise to $2,700 or even $3,000 per ounce is risky.
Firstly, inflation could come back in the US, leading markets to reconsider their expectations of rate cuts. Second, geopolitical tensions could ease.
For those wishing to jump on this possibly departing train, it is worth reflecting on the volume profile indicator and not skimping on risk management. Besides, rule # 1 for any investor is to do their own research before making any decisions.
