(Kitco News) - With no end in sight to the ongoing war in Iran, some analysts are warning gold investors to expect a little more pain in the marketplace, as rising energy prices are creating an inflation threat which could force central banks to halt their easing cycles and adopt a wait-and-see approach.
The gold market saw significant technical chart damage after prices dropped below their 50-day moving average, which came in just below $5,000 an ounce.
Kelvin Wong, Senior Market Analyst at OANDA, said in a note to Kitco News that Wednesday’s breakdown and follow-through selling have triggered a pivotal moment in the gold market.
“In terms of price structure, [Wednesday’s] plunge suggests that the 23% rally from the 2 February 2026 low of $4,402 to the 2 March 2026 high of $5,420 is considered a corrective rebound, aka ‘dead cat bounce,’ and the next movement is now skewed towards a potential multi-week bearish impulsive down-move sequence,” he said.
Wong’s comments come as the gold market looks set to end the week with a more than 8% loss—its biggest weekly decline in six years, when the global economy was forced to shut down because of the COVID-19 pandemic. Spot gold last traded at $4,584.10 an ounce, down more than 1.7% on the day.
Meanwhile, silver is looking to end the week with a nearly 14% loss, its biggest decline since the blowoff top in January. Spot silver last traded at $68.96 an ounce, down more than 5% on the day.
Rob Haworth, Senior Investment Strategist at U.S. Bank Wealth Management, said that gold’s selloff is not surprising given the speculative drive seen at the start of the year.
He added that the yellow metal could see further losses as investors who bought above $5,000 an ounce cut their positions.
“Speculators are now faced with a difficult decision. I think many were trying to wait out the volatility in February, just waiting to see what would happen, but a lot of that money is now underwater,” he said. “It might only get worse.”
Analysts have said that everything now hinges on what happens in the Middle East and whether supply chain issues will be resolved if the Strait of Hormuz is reopened.
In his latest precious metals note, Bernard Dahdah, Precious Metals Analyst at Natixis, said he sees gold prices trading between $4,600 and $4,700 an ounce as the world waits to see how the war with Iran unfolds, but warned that risks to the downside are growing.
“If energy assets are further destroyed and the war is prolonged, the endgame could see gold prices at the lower end of $4,000/oz. This is because under such a scenario, even the Fed would need to raise rates given sticky energy prices,” he said. “However, we do not think the long-term trend for gold is at the lower end of $4,000/oz. If the damage to energy infrastructure is limited and oil prices quickly drop back to pre-war levels, then we could see central banks develop a stronger appetite for gold purchases. This, in turn, could put gold back on its trajectory of enduring levels above $5,000/oz.”
Although gold faces some difficult headwinds in the near term, analysts say they remain bullish on the precious metal over the long term. Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that the reasons investors bought gold at the start of the year haven’t changed, as the global economy continues to face unprecedented uncertainty due to geopolitical turmoil and rising government debt.
“Investors need to fall out of love before being able to become passionate again. That basically means investors who still like the metal—there are many—need proof that the worst is over,” he said.
Along with a difficult technical landscape, analysts say the biggest reason gold is not behaving like a safe-haven asset in the middle of a war is the growing inflation threat driven by rising energy prices.
This past week saw all major central banks keep interest rates unchanged and enter a neutral holding pattern as they wait to see how the war impacts inflation expectations.
Haworth said that the next four to six weeks will be crucial for central banks as companies begin adjusting their budget forecasts ahead of the summer.
“As we get into tax time, into mid-April, that’s when business decisions start to change,” he said.
However, markets have not been very patient and have already started to aggressively price out rate cuts from the Federal Reserve this year.
“In the U.S., not even a full rate cut is priced in by the end of the year,” said Thu Lan Nguyen, Head of FX and Commodity Research at Commerzbank. “At the end of February, the market had still anticipated 2½ rate cuts. More recently, U.S. rate cuts have been further priced out, primarily as a result of the Fed meeting. This is because Fed Chair Jerome Powell emphasized inflation risks and noted that further monetary easing would be off the table should signs intensify that inflation will not return to target in the medium term. The gold price is therefore likely to continue to decline as energy prices rise further, threatening to push longer-term inflation expectations higher.”
Although a hawkish shift from the Federal Reserve will continue to weigh on gold—as it supports higher bond yields and a stronger U.S. dollar—some analysts still see long-term potential.
Michael Brown, Senior Market Analyst at Pepperstone, said that a focus on inflation could force the central bank to make a policy mistake by tightening rates into a recession.
He pointed out that monetary policy isn’t effective in dealing with supply-driven inflation. All policymakers can do is slow economic growth to cool demand.
“For the time being, given the huge uncertainties associated with the duration of the Iran conflict, as well as its precise economic fallout, central banks adopting a ‘wait-and-see’ stance is the logical thing to do,” he said. “If we are on the verge of a central bank mistake, though, then gold could perform relatively well in the longer term if participants seek to hedge downside growth risks. I wouldn’t say that the bull market is over, but I’d definitely want to see a period of consolidation before becoming more confident in dip buying at this juncture.”
With little economic data set to be released next week, investors are expected to continue dissecting the precarious environment that central banks will have to navigate.
Economic data to watch next week:
Tuesday: Flash S&P PMI data
Thursday: US weekly jobless claims
