Investing.com – Gold’s rally has cooled with President Donald Trump opting against further escalation of the U.S. conflict with Iran. But that didn’t stop safe-haven buyers from pushing the market to near-seven-year highs above $1,600 on Wednesday.
While the yellow metal’s more-than-1% drop on the day was the sharpest in over a month, the decisive move above $1,600 kept alive gold bugs' hopes that the 2020 gold rally was still in its early days.
Gold futures for February delivery on New York’s COMEX settled down $14.10, or 0.9%, at $1,560.20 per ounce. The contract was down as much as 1.2% in post-settlement trade at 2:35 PM ET (19:35 GMT).
Spot gold, which tracks live trades in bullion, was down $20.15, or 1.3%, at $1,553.74.
But before midnight in New York on Tuesday, February gold hit $1,612.95 and spot gold struck $1,611.52, both highs dating back to since March 2013, after Iran fired a series of rockets at two U.S.-Iraqi airbases.
The rocket launches were Tehran’s first military response to the U.S. killing of Iranian commander Qassem Soleimani last week. Trump, speaking after the Iranian attack on the U.S. airbases, said the United States will hit Iran with heavier sanctions. But he did not speak of a counterattack. He also offered Tehran chances for talks if it “changed its behavior,” a further sign of diplomacy.
Some gold analysts said they expected the yellow metal to decline further. Others said a rebound from Wednesday’s decline was highly likely.
”Regardless of what happens in the short term, I remain fundamentally bullish on gold because of an overvalued U.S. stock market and central banks’ desire to keep global interest rates at these extraordinary low levels,” said Fawad Razaqzada, analyst at forex.com in London.
Investors buy gold as a hedge to economic and political troubles, as well as currency debasement. Gold futures rose 16% last year while bullion surged 18%, responding to the U.S.-China trade war, Brexit troubles and Federal Reserve rate cuts.
The dollar, which often moves opposite to gold, rose as expected on Wednesday. The dollar index, in which the greenback trades against a basket of six currencies, rose by 0.3% to 96.99.
“Gold bulls have virtually no dry powder left, with both an extreme number of traders long, and a larger-than-expected position held on a per-trader basis,” TD Securities said in a note. “This adds strength to our view that gold is overbought in the short term.”