On Wednesday (November 20), the price of spot gold in the Asian markets continued to fluctuate upwards, at one point reaching a high of $2,641.65 per ounce, the highest in over a week, currently trading around $2,640.40. The escalation in the Russia-Ukraine situation is stimulating demand for safe havens, while pressure on the dollar following the cooling of the "Trump trade" is providing short-term support for gold prices.
Escalation in Russia-Ukraine Tensions Heightens Risk Aversion
Geopolitical tensions are the main driver for the rise in gold prices. The Russia-Ukraine war has entered its 1,000th day, with Ukraine using US-provided ATACMS missiles to strike Russian territory for the first time, gaining significant attention from Russia. In response, Russian President Putin signed a new nuclear deterrence policy on Tuesday, lowering the threshold for nuclear strikes, indicating a potential nuclear response in case of severe threats from conventional attacks.
Russia has repeatedly warned over the past few months that if Western countries allow Ukraine to launch missiles into Russian territory, Moscow would consider it direct participation by NATO. Analysts pointed out that this move by Russia aims to counter possible threats by escalating its deterrence strategy, further increasing geopolitical risks in Europe.
With the nuclear strike risk rising, major European stock indices fell to a three-month low on Tuesday, as investors flocked to safe-haven assets, with gold becoming a primary choice for fund flows.
Weaker Dollar Supports Gold Prices
On the other hand, the cooling "Trump trade" in the US market has also created conditions for gold prices to rise. Despite the recent hawkish comments from the Federal Reserve, the dollar index has fallen for three consecutive days since hitting a one-year high last Thursday. Market attention remains focused on Federal Reserve officials' statements and interest rate paths as important short-term factors influencing the dollar's trend.
There is a division within the Federal Reserve regarding the prospects of a rate cut in December. Kansas City Federal Reserve President Schmid indicated on Tuesday that while the initial rate cut reflects confidence in inflation returning to target, the future extent of rate cuts remains uncertain. Traders currently estimate a 57% probability of a 25-basis-point rate cut in December. However, strong recent US economic data and potential tariff policies from the new administration are increasing the expectation of maintaining high interest rates.
Trump's New Administration Dynamics and Market Impact
Investors are closely watching the policy direction of Trump's new administration. It is reported that Trump is considering appointing former Federal Reserve Governor Kevin Warsh or Apollo Global Management's Mark Rowan as Treasury Secretary. Additionally, a recent Reuters/Ipsos poll shows that the American public widely believes that controlling inflation should be Trump's top priority upon taking office.
Gold Price Outlook: Balancing Risk-Aversion Needs and Policy Expectations
In the short term, safe-haven buying and a weaker dollar are supporting gold prices, but the future movement of gold prices will still depend on whether expectations for a Federal Reserve rate cut in December cool and whether the dollar strengthens again. Although gold prices are currently maintaining an upward trend, there are many market variables, and investors must closely monitor Federal Reserve policy dynamics and the new administration's policy plans.
Overall, with the dual backdrop of escalating Russia-Ukraine tensions and pressure on the dollar, spot gold is likely to continue its upward trend, but the market must still be wary of the risk of a rebound in the dollar's trend.
