Gold retests $2,000/oz on geopolitical risk and recession fears

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Vrasidas Neofytou
Head of Investment Research

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Gold retests $2,000/oz on geopolitical risk and recession fears

Gold shines again as its price is reapproaching the key $2,000/oz psychological level on surging demand for haven assets due to elevated geopolitical risk, disappointing Q3 earnings, and the recession fears in the Eurozone.

Growing worries that the “well-expected” ground invasion of Israel to Gaza could potentially spread the conflict in the Middle East region, has deteriorated the risk appetite in global financial markets, adding pressure on equities and growth-sensitive assets and currencies, and sending investors to the safety of bullion, the gold, and silver.

The safe-haven demand for gold has pushed its price to retest the key levels of $2,000/oz, (currently at $1,992/oz) adding $170/oz, or almost 10% gains since the start of the Israel-Hamas conflict on October 07, while silver added $3/oz or nearly 15% in the same period.

Gold price, Daily chart

The resuming recession fears around the world and the lower-than-expected Q3 U.S. earnings are darkening the global economic growth outlook for 2023-2024, keeping haven demand for gold upbeat in October.

Investors believe that the higher interest rates and the expensive raw materials in the major global economies of the USA and Europe could lead to weaker business activity in the following months, leading to weaker profitability and employment.

This statement is supported by the official data released on Tuesday showed that the Eurozone’s Manufacturing and Services activity had further declined in October, which raised concerns over a potential recession in the region.

Germany, Europe’s largest economy and heavy industrial leader in the region had entered a recession earlier this year. At the same time, its Manufacturing and Services PMI remained in contraction at the start of the fourth quarter.

Gold’s rally accelerated on Wednesday following a steep sell-off in the mega-cap technology stocks after some disappointing Q3 earnings, with tech giant Alphabet slumping nearly 10% after its cloud division missed revenue estimates, while Amazon and Nvidia followed with 4% losses each.

The surging U.S. bond yields and inflation, the stronger greenback, the higher energy and production expenses, and the elevated borrowing costs have brought major headwinds for corporations across the board, especially in the growth-sensitive technology sector.

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