Gold rallies 2% at start of week with renewed geopolitical tensions

LONDON (May 5) Gold (XAU/USD) rises by more than 2% on Monday to $3,317 at the time of writing, as geopolitical risk surges. The Houthi attack that hit Ben Gurion airport this weekend and Israel's promise to retaliate while preparing for a broad ground offensive in Gaza are elevating risks again in the region. Meanwhile, US President Donald Trump said that military action might be an option to consider for the US to seize control of Greenland. 

Gold’s appeal increases as traders brace for the Federal Reserve’s rate decision on May 7. Over the weekend, Trump expressed his dislike again of the Fed and its Chairman Jerome Powell. After calling Powell “stiff”, the US President called upon the Federal Open Market Committee (FOMC) members to pressure Chairman Powell to deliver rate cuts. 

According to the Chicago Mercantile Exchange (CME) Fedwatch tool, no rate cut is foreseen for this Wednesday. Given the recent Nonfarm Payrolls print and the latest string of data from sectors such as Manufacturing and Services, the US economy is starting to ease, but is not crashing. This could be ammunition for Fed Chairman Powell to push against the political pressure and channel to markets that rates will stay steady for longer until the Fed is comfortable enough to lower them.

Daily digest market movers: Rate cut bets pared back

• Several Asian markets are closed for a public holiday on Monday. The United Kingdom is closed as well. 
• In the Gold mining sector, some takeover news with Gold Road Resources agreeing to be bought for $3.7 billion after South African suitor Gold Fields sweetened its offer, concluding a public spat between the joint venture partners, Financial Review reports. 
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May's meeting stands at 5.2% against a 94.6% probability of no change. The June meeting sees a 46.6% chance of a rate cut.

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