Concerns over ‘escalating conflicts in the Middle East’ pushes gold prices higher

The price of gold maintained some of its upward momentum early on Monday, starting its trading at $2371 despite a sharp retreat from the record level of $2431 late in Friday’s session.

The recent price hike was supported by continued escalating geopolitical tensions and concerns over escalating conflicts in the Middle East, as gold serves as a haven. This coincided with strong buying from central banks and prospects of Federal Reserve interest rate cuts in the coming months.

However, Friday’s sharp drop, which left a long upper wick on the daily candle, signals initial weakness in momentum and warns that the uptrend may take a breather for correction amid overstretched buying saturation.

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From my perspective, investors quickly discounted the initial market reaction to the Iranian attack on Israel over the weekend, evident from generally positive movements in stock markets. This, coupled with expectations of the Federal Reserve delaying interest rate cuts, are the primary factors exerting negative pressure on gold, which is considered a haven.

I believe the market has now retreated from expectations of an initial Federal Reserve interest rate cut until September following data showing persistent inflation. This remains supportive of high US Treasury bond yields and prevents further increases in gold prices, which yield nothing. However, today’s weak demand for the US dollar serves as some support for gold.

Looking ahead, if the conflict in the Middle East intensifies, it’s likely that gold prices may extend their rebound towards $2450. However, renewed demand for the US dollar due to increased safe-haven flows and hawkish expectations from the US Federal Reserve could be stronger and prevent further increases in gold prices.

The focus will also be on high-impact US retail sales data scheduled for later today, with the monthly figure rising 0.3% in March, slower than February’s 0.6% increase.

Despite the recovery in Asian markets, led by a rise in Chinese stocks, investors remain in a wait-and-see mode before placing new bets on risky assets following the escalation of geopolitical tensions in the Middle East last Saturday.

US Treasury bond yields continue to hold their recent gains due to reduced expectations of interest rate cuts by the US Federal Reserve from June to September, supported by rising inflation and a resilient US economy. Therefore, it seems to me that any additional increase in gold prices is unlikely due to rising US Treasury bond yields, which support the dollar.

If risk sentiment turns positive, this could lead to a new wave of selling in gold prices. Traders and investors take into account condemnations from the UK, France, and Egypt of Iranian actions, while Saudi Arabia has called for restraint, leading to some moderation in the markets so far. It’s worth mentioning that S&P 500 futures rose by 0.25% during the day, reflecting renewed optimism in the market.

Most likely, data released from the US economic calendar will dominate price movements and the market in general, as it has a significant impact on the value of the US dollar, and consequently, on the price of gold denominated in US dollars.