(Kitco News) - While gold prices look set to start the long weekend with another weekly gain, analysts note that the market is still trying to find balance amid elevated volatility driven by the ongoing chaos in the Middle East.
Gold prices are on track to end the week with a 3% gain, with prices above $4,600 an ounce; however, the precious metal hit a brick wall on Wednesday and Thursday, with prices unable to break resistance at $4,800 an ounce.
Analysts said the price action indicates that the precious metal remains caught in a tug-of-war due to the U.S. and Israel’s joint conflict with Iran. Through most of the week, gold and silver saw renewed bullish momentum as investors held out hope that the war would be resolved soon.
While President Donald Trump tried to project that confidence in a national address on Wednesday, analysts point out that markets are now starting to price in a more prolonged conflict, as oil prices have pushed back above $100 a barrel ahead of the Easter long weekend.
Expectations of further global supply-chain disruptions are also supporting persistent strength in the U.S. dollar.
“The promise to send Iran back to the Stone Age contrasted with his previous statement about ending the conflict within 2–3 weeks amid successful negotiations,” said Alex Kuptsikevich, chief Market Analyst at FxPro. “Polymarket participants estimate the chances of the war between the US and Iran ending by the end of June at 65%. A closure of the Strait of Hormuz before then would be a real disaster for the global economy.”
Kuptsikevich noted that this uncertainty will continue to create headwinds for gold.
“The Middle East conflict is weighing on gold prices amid expectations that central banks will raise interest rates to address rising inflation driven by oil prices,” he said. “This is a rather short-sighted approach, as current fuel prices are a shock to consumers, and this will be followed by a shock to the economy, requiring monetary policy to be eased, not tightened. However, we first need to hear that central banks share this view; for now, they remain focused on inflation. Among our medium-term price targets, we have the 4200 level. A fall in gold to this level will not break the upward trend. A break below this level would signal a reversal of the three-year uptrend. A rebound from this level would keep alive the hope that the bullish trend in gold is not yet over.”
Nick Cawley, market analyst at Solomon Global, said he sees gold prices in a solid recovery mode after briefly falling below $4,100 an ounce in last month’s sharp selloff.
He added that the key factor for the precious metal remains the Iran war.
“Inflation will remain a short- to medium-term worry and cannot be ignored. Central banks will start to tighten monetary policy over the coming weeks, but as long as markets can see that this is a short-term situation, with rates falling at the end of this year onwards, then traditional gold headwinds will be mild,” he said. “The next level of importance for gold is $5,000/oz, more as a psychological barrier than a true technical level of resistance. A confirmed break above here over the coming weeks will see gold reset its sights on the end-of-January all-time high.”
Looking ahead, Lukman Otunuga, Senior Market Analyst at FXTM, said he will be watching initial support at $4,600 an ounce, as gold will remain highly sensitive to inflation fears and the potential for higher interest rates in the face of surging energy prices.
“Looking at the charts, a solid daily close below $4600 could encourage a decline toward $4450. Should $4600 prove reliable support, prices may rebound back toward $4800,” he said.
He explained that gold’s safe-haven allure could eventually become a more important driver than rising opportunity costs from higher interest rates.
“Gold may regain its safe-haven shine if a prolonged closure of the Strait of Hormuz becomes a growth shock that threatens the global economy,” he said. “The Fed remains in a tight spot as it balances conflict-induced inflation against signs of weakness in the labour market.”
Otunuga added that with markets closed for Good Friday, the March U.S. nonfarm payrolls report will set the tone for next week. Although markets are closed, the U.S. government does not recognize Easter as an official holiday, so the employment report will still be released.
Along with Friday’s employment report, markets will also receive important service sector and manufacturing data.
The minutes from the Federal Reserve’s March monetary policy meeting will also garner attention next week, but the main event will be the Personal Consumption Expenditures Index, which is the Federal Reserve’s preferred inflation gauge. The week will end with the release of more inflation data, including the U.S. Consumer Price Index.
Economic data to watch next week:
Monday: ISM Services PMI
Tuesday: US Durable Goods Orders
Wednesday: Federal Reserve monetary policy meeting minutes
Thursday: US final Q4 GDP, US PCE Index
Friday: US CPI, University of Michigan Preliminary Consumer Sentiment
