(Kitco News) - The gold market could continue to see further profit-taking and consolidation through the summer, but Friday’s price action shows that investors still want some exposure to this important safe-haven asset heading into a volatile weekend.
The precious metal is ending the week with a significant loss, as investors were quick to liquidate some of their bullish bets when prices failed to hold gains at a three-month high above $3,400 an ounce.
Spot gold last traded at $3,364.70 an ounce, down nearly 2% on the week. Meanwhile, silver is relatively outperforming gold even as prices look to close the week below $36 an ounce. Spot silver last traded at $35.99, down 0.68% from last Friday.
However, gold found some support on Friday, rallying nearly 1% from its lows early in the session as Israel’s conflict with Iran fueled safe-haven demand. Analysts have noted that amid so much chaos and uncertainty in the Middle East, investors are turning to gold as a hedge.
“Yes, gold is a crowded trade, but if you don’t know what is going to happen, it makes sense to hold an asset that has no geopolitical liability. Gold is an easy way to balance the risks in your portfolio,” said Philip Streible, Chief Market Strategist at Blue Line Futures. “I think it makes sense to hold a little gold over the weekend. I think it will help investors sleep a little better.”
While gold and silver still have room to move lower, Streible said geopolitical uncertainty could limit the downside for precious metals.
Analysts and economists note that, so far, the conflict has remained contained within the region. U.S. President Donald Trump said Thursday that he would give Iran two weeks to make a deal concerning the development of the nation’s nuclear sector. However, analysts caution that tensions remain high and that any development threatening the global oil supply chain would negatively impact the global economy.
Christopher Vecchio, Head of Futures & Forex at Tastylive.com, said gold remains in a long-term uptrend, having re-established itself as a key monetary asset in the global marketplace. However, he added that speculative positioning suggests some near-term challenges for the metal.
“It’s difficult to see how gold can sustain a break above $3,400 when everyone is already bullish on the metal,” he said. “Right now, gold has everything going for it, and it still can’t break to new highs. That should be a concern for traders. We can clearly see that a lot of people are long gold, and many are very, very short the dollar. This creates a headwind for gold at the moment.”
Despite the short-term negative outlook, Vecchio said he remains bullish on gold and views any dip as a buying opportunity.
“It wouldn’t shock me to see some weakness in the metals through the end of the month as people rebalance and take profits. That doesn’t necessarily indicate where gold will be in three months,” he said. “If gold can continue to hold $3,310, then we’re still in a good space. If it drops below that, I’ll reassess my position closer to $3,260.”
Fawad Razaqzada, Market Analyst at City Index and FOREX.com, said that although weakness is creeping into the gold market, now might not be the time to short the metal.
“To declare an end to the bull trend while Iran and Israel are at each other’s throats would be a brave call. The trend is still bullish, and key support levels are holding firm. Thus, it is far too early to declare an end to the bullish gold trend—especially ahead of the weekend, when tensions in the Middle East could escalate again,” he said.
In the current environment, Razaqzada said the first level of support is around $3,350 an ounce.
“Below $3,350, the next downside target is $3,300, marking the previous lows. Below that, the bullish trend line that has been in place since the start of the year comes into focus. In terms of resistance, $3,400 remains the key level to watch on the upside,” he added.
Outside of the short-term geopolitical uncertainty, analysts remain bullish on gold as U.S. monetary policy continues to provide critical support. The Federal Reserve maintained a neutral stance this week, leaving interest rates unchanged on Wednesday. However, many analysts believe it’s only a matter of time before the central bank is forced to lower rates.
“The gold price remained virtually unaffected by the U.S. Federal Reserve’s monetary policy decision on Wednesday evening,” said Thu Lan Nguyen, Head of FX and Commodity Research at Commerzbank. “In principle, however, the prospect of lower U.S. interest rates remains a supportive factor for gold, even if it is unlikely to lead to another sharp rise in prices.”
With renewed focus on U.S. monetary policy, markets will closely watch Federal Reserve Chair Jerome Powell’s two-day semiannual testimony on Capitol Hill.
Powell continues to face significant criticism from President Donald Trump, as the central bank has been reluctant to cut interest rates amid persistent inflation risks.
Economic data to watch next week:
Monday: S&P flash PMI
Tuesday: US Consumer Confidence: Fed Chair Powell testifies before the House Financial Services Committee
Wednesday: US New Home Sales, Fed Chair Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs
Thursday: Weekly jobless claims, US Durable Goods Orders, US final Q1 GDP, pending home sales
Friday: US PCE Core Inflation,
