Gold regains its status as a "safe haven" and is already up 9% in August - Reuters

This month, gold has risen in price by approximately 9%. The precious metal is thus showing the first signs of a recovery in demand as a safe-haven asset after a sharp fall in prices caused by the war waged by the United States and Israel against Iran, UNN reports, citing Reuters.

Details

It should be noted that despite the optimistic trend, further strengthening or weakening of gold on the financial market  will depend on the situation in the Middle East, oil prices, and the policy of the U.S. Federal Reserve.

In August, the price of gold returned to around $4,400 per troy ounce. Before that, the precious metal experienced a large-scale decline: after reaching an all-time high of approximately $5,595 in January, its price fell below $4,000 in June.

Analysts note that in recent weeks gold has broken through several important technical resistance levels. The market has also shown signs of the return of major institutional buyers.

James Steel, HSBC's chief precious metals analyst, suggested that the scale of the latest rise could indicate increased activity by central banks or sovereign wealth funds. At the same time, there is still no confirmed data on specific major buyers.

Why gold is regaining its strong position

China remains one of the factors supporting the market. In July, the People's Bank of China increased its gold reserves by 20 tonnes, to 2,366 tonnes. This was its largest monthly purchase since October 2023 and extended the run of increases in gold reserves to 21 consecutive months.

Investor interest in gold exchange-traded funds is also recovering. In July, they recorded approximately $3 billion in net inflows after two months of outflows. The combined gold holdings of such funds increased to more than 4,000 tonnes.

What triggered the decline in the price of the precious metal

Despite its traditional status as a "safe haven," gold initially fell sharply in price after the war with Iran began. Amid market panic, investors sold assets to obtain cash liquidity.

The sharp rise in oil prices created additional pressure. High energy prices increased inflation risks and expectations of tighter monetary policy by the U.S. Federal Reserve.

Higher interest rates and yields on U.S. government bonds traditionally weigh on gold, since the precious metal itself generates no interest income.

In the second quarter, gold ETFs lost approximately 45 tonnes of metal, while the price of gold fell by around 14%, marking the largest quarterly decline since 2013.

What is happening with gold on August 18

On Tuesday, August 18, gold edged lower after its previous rise. The spot price fell by approximately 0.4%, to around $4,397 per ounce.

Several opposing factors are affecting prices simultaneously. On the one hand, renewed tensions surrounding Iran are increasing demand for safe-haven assets. On the other hand, they are pushing up oil prices and U.S. government bond yields, creating pressure on gold.

On August 18, Brent crude was trading near $91.8 per barrel amid deteriorating prospects for a diplomatic settlement between the United States and Iran.

At the same time, weaker U.S. economic indicators reduced expectations of another Fed rate hike. This, by contrast, is a positive factor for the precious metal.

Context

Gold is considered one of the main safe-haven assets during periods of war, financial crises, and high inflation. Investors use it to preserve capital amid sharp fluctuations in stock markets, currencies, and other assets.

However, the current war involving Iran has been an atypical example. At the start of the conflict, geopolitical tensions did not support gold but instead triggered a sell-off. Investors needed liquidity, while the sharp rise in oil prices increased the risk of accelerating inflation and high rates remaining in place in the United States for an extended period.

The situation began to change in the summer. Central banks once again increased their purchases of the precious metal. In the second quarter, they bought approximately 289 tonnes of gold on a net basis, a record figure for this period of the year.

At the same time, total central bank purchases in the first half of the year were weaker than in previous years due to significant gold sales by individual countries. Thus, the recovery in demand cannot yet be called uniform.

According to the World Gold Council, total global demand for gold, including over-the-counter transactions, reached approximately 2,522 tonnes in the first half of the year, 2% more than a year earlier. In monetary terms, demand reached a record approximately $380 billion.

The future situation in the market will largely depend on the Fed's policy. If the regulator refrains from raising rates again or shifts to a more accommodative policy, gold may receive additional support. At the same time, a new sharp rise in oil prices and inflation could once again push U.S. bond yields higher and put pressure on the precious metal.

The $4,500-per-ounce area remains a technically important level for gold. Analysts view a sustained move above it as one of the possible signals of a full-fledged return of the uptrend.

Gold is currently gradually regaining its financial appeal, but the market has not yet returned to the conditions that existed before the start of the war. Further price movements will be determined simultaneously by geopolitical risks, the situation in the oil market, the actions of central banks, and decisions by the U.S. Federal Reserve.

We remind you

The United States minted the first batch of commemorative gold coins featuring President Donald Trump, dedicated to the 250th anniversary of independence. The coin is made of 24-karat gold; Trump is depicted on the obverse and a bald eagle on the reverse.