(Kitco News) - The gold market has been unable to sustain a safe-haven bid even as the war in the Middle East adds to ongoing geopolitical and economic uncertainty. Although the precious metal remains in a healthy uptrend, analysts warn that investors need to keep an eye on support at $5,000 an ounce next week.
The gold market started the week bullishly as investors reacted to the joint U.S.-Israel missile strikes against Iran, triggering a new conflict in the Middle East; however, gold’s gains have been short-lived as prices are poised to end the week in negative territory, halting a four-week winning streak.
Spot gold last traded at $5,142.60 an ounce, down 2.5% from last Friday.
Although gold is facing some renewed selling pressure, analysts note that there is no clear picture for the precious metal, as disappointing employment data on Friday has provided some support ahead of the weekend.
U.S. nonfarm payrolls fell by 92,000 jobs in February, the Bureau of Labor Statistics reported on Friday. This figure significantly missed consensus forecasts, as economists had anticipated job gains of around 58,000.
At the same time, the unemployment rate rose to 4.4%, up from January’s reading of 4.3%. Economists were expecting to see an unchanged reading.
Analysts note that the precious metal is caught in a new tug-of-war as weak economic data potentially supports aggressive easing from the Federal Reserve through the second half of the year; however, on the other side, geopolitical uncertainty driving oil prices and inflation higher could force the central bank to maintain its neutral monetary policy longer than expected.
"Several forces are pushing and pulling gold,” said Neil Welsh, Head of Metals at Britannia Global Markets. “You have the safe haven flows around the Middle East conflict, a firm US dollar, lingering inflation concerns, and an ever-evolving rate cut outlook keeping prices essentially range-bound. Liquidity stress and portfolio reallocations, including margin-related selling, often become the decisive driver at times like this, overwhelming short-lived safe-haven rallies.”
Michael Brown, Senior Research Strategist at Pepperstone, said that gold’s selloff and ongoing volatility this week is an indication that the market still has to work out some of the froth from January’s speculative run.
“We’ve not really seen bullion trading akin to a haven at all, instead its acting more like a momentum-driven risk asset, having an almost perfect inverse correlation with crude benchmarks over the last week or so. That suggests to me that we still have an awful lot of speculation in the market, which is really preventing gold from acting as the haven that we think it ‘should’ be in a time like this,” he said. “That said, there’s clearly massive support at the $5,000/oz mark, which we did test earlier in the week, which I’d expect to mark a low for the time being, barring a concrete end to hostilities in the Middle East, which would be a major boost to risk appetite, and a headwind to bullion. Unless/until that happens, it seems as if we might be stuck in a range for now.”
With so much uncertainty in the Middle East, analysts are recommending that traders pay attention to oil prices as they are impacting the U.S. dollar and precious metals.
Oil prices have spiked as the military action against Iran has impacted production in the Middle East, destabilizing the global supply chain. April West Texas Intermediate (WTI) crude oil prices are looking to end the week around $90 a barrel, their highest level since October 2023.
“Gold’s recent behavior reflects the delicate balance between its traditional role as a safe-haven asset and the strength of the U.S. dollar during periods of global tension. As the crisis in the Middle East continues to drive volatility in energy and financial markets, investors will remain focused on U.S. macroeconomic data and Federal Reserve decisions, factors that are likely to shape the direction of the precious metal in the coming weeks,” said Antonio Di Giacomo, Senior Market Analyst at XS.com.
Although gold is struggling to find its footing, some analysts continue to expect weakness to be bought. Naeem Aslam said gold prices could remain under pressure as he doesn’t see a lot of panic in the marketplace yet, as nobody knows how long the Middle East war with Iran will last.
“Basically, market players are looking at oil prices, which are telling them that there are no real concerns about them exploding despite the Middle East tensions. Back in the US, the focus continues to remain on the overall economic picture in the U.S., which again is not flashing any red flags to a level that would say that there is huge panic,” he said. “For me, now, everything is very much based on one thing: how long will this war last. If it goes over a month or closer to that, it would re-ignite a lot of interest in gold. Overall, we continue to think that it is not the time to sell gold and buy on any sell-off opportunities.”
Looking at technical levels, Lukman Otunuga, Senior Market Analyst at FXTM, said that he sees $5,000 as an important psychological level to watch next week.
“A weekly close below $5000 may signal a steeper decline,” he said. “Bulls could still fight back if that level proves reliable support. Key technical levels can be found at $5200, $5050, $5000 and $4900.”
Because of renewed focus on energy prices, some analysts have said that gold markets could be sensitive to inflation data next week. Markets will get the Consumer Price Index (CPI) report and Personal Consumption Expenditures (PCE) data, which is the Federal Reserve’s preferred inflation gauge.
Investors will also be anxious to see the second reading of U.S. GDP for the fourth quarter after the disappointing initial estimate, which showed the economy expanded by only 1.4%.
Economic data to watch next week:
Tuesday: US existing home sales
Wednesday: US CPI
Thursday: US weekly jobless claims; US housing starts and building permits
Friday: US durable goods orders, Preliminary Q4 GDP, Core PCE, JOLTS job openings, University of Michigan preliminary consumer sentiment survey
