What makes gold rise in value?

The price of an ounce of gold today has reached USD 1890, the highest level since June 2021. Investors seem to be directing their capital towards a safe harbor, including in connection with fears of an armed attack by Russia on Ukraine and the potential consequences of this aggression. However, there are also other factors that work in favor of gold today.

Record from the last meeting published yesterday Federal Reserve it did not contain any hints about a 50 basis point hike in interest rates, which could also have contributed to the increase in the price of gold. The probability of the March interest rate hike dropped to 30 percent, according to the valuation of futures contracts on the federal funds rate.

Less likelihood of an increase in US interest rates and increased tensions in eastern Europe may result in increased investors' demand for US bonds. This, in turn, may lead to a drop in profitability and, as a consequence, gold may then become more attractive. The yield on US 10-year treasury bonds fell to 2% today. During the previous session, it reached a 30-month peak of 2,0645%.

Oil market turmoil good for gold

Another factor potentially affecting gold prices may be the situation in the oil market. Today the price of a barrel of WTI crude oil seems to be dropping to around $ 90. What could the information that nuclear deal with Iran seems closer today than ever before. If it happens, the US may lift sanctions from Iran, and thanks to this, the supply of oil in world markets will probably increase, which may lead to a reduction in prices.

In such a case, inflation expectations may start to drop if oil ceases to rise. Falling inflation expectations may reduce the chances of the pace of interest rate increases, which in turn may positively affect gold again.