The gold price chart is starting to resemble roller coasters: sharp rises followed by corrections, and vice versa. And it's not about Senator Lummis' call to sell part of the Fed's gold reserves to buy BTC for U.S. reserves.
Of course, geopolitics is the main reason for the rise in volatility. Last week's rise, for example, was triggered by the Biden administration's approval for Ukraine to use long-range weapons against Russia.
The fear that the situation could spiral into something much worse — like a third world war or the use of nuclear weapons — has clearly fueled increased demand for safe-haven assets like gold.
As reports suggested that Israel and Lebanon may have reached or are close to an agreement, hedge funds seem to have reduced their long positions in gold, pushing prices lower.
The US dollar's strength, stemming from geopolitical tensions and Trump's plans to introduce a wave of tariffs and start new trade wars, has also added fuel to the fire, as usual for commodities.
What's in store for gold?
It is hard to believe that the dollar's strengthening will continue much longer, as A) it will negatively impact US exports and B) it could hurt countries with dollar-denominated debt.
As for the geopolitical factor, even if Israel agrees to a ceasefire under pressure from the US and the international community, it is too early to talk about peace in the Middle East.
First, this would be a temporary truce, not a peace treaty. Secondly, there are still many risks in the region, including Iran, which has promised to attack Israel again, which will have a response.
And, of course, let's not forget the conflict between Russia and Ukraine, where tensions are rising even higher. There have even been rumors that the United States could supply nuclear weapons to Ukraine.
In this sense, we are likely only witnessing a correction and not a complete reversal of the trend. Thus, the outlook for precious metals could remain positive in the long term.
UBS, like Goldman Sachs, expects gold to rise to $2,900 an ounce by the end of next year as central banks expand their holdings and the Fed continues to cut rates unless inflation picks up.
In this regard, it’s crucial to monitor the CPI and PPI data and the overall economic performance since the FOMC will base its December meeting decision on this information.