Gold price retreats as fear of Middle East escalation fades

Fears over wider Middle East conflict subside, gold price drops 

Gold prices dropped 2% on Monday, settling at $2,354.61 per ounce by 1148 GMT, as diminishing concerns over a potential full-scale conflict in the Middle East reduced the metal’s safe haven appeal.  

U.S. gold futures also fell, declining 2.4% to $2,357.00. 

Analysts believe the receding fears of a broader war between Iran and Israel have cooled the safe-haven demand that had previously buoyed gold prices, MarketWatch reported. 

In a move perceived as trying to prevent further regional turmoil, Tehran downplayed the significance of Israel's recent retaliatory drone strike on Iran. 

Gold prices had neared a record high, reaching $2,417.59 per ounce in the previous session, close to the April 12 peak of $2,431.29, as investors had turned to the precious metal for security. 

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PCE report on Friday could prove key for gold price 

Market sentiment began to shift with the start of the new week, as equities rebounded, and both oil prices and bonds saw declines, signaling a move away from the defensive investment strategies favored before the weekend. 

Looking ahead, the U.S. personal consumption expenditures (PCE) report due on Friday could reinforce concerns about persistent inflation, possibly delaying anticipated interest rate cuts, which could negatively impact gold. 

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said on Friday that efforts to reduce inflation have "stalled" this year. He joined other Fed officials in suggesting that interest rates might need to remain elevated longer to manage inflationary pressures effectively. 

The sentiment echoed comments from Fed chair Jerome Powell last week. Neil Wilson, Markets.com Chief Market Analyst, noted last Wednesday that the monetary policy stance, widely known as “higher for longer”, had made an official return in the US: 

“Federal Reserve Chair Jay Powell said that ‘it's likely to take longer than expected’ for the FOMC to have confidence that inflation will return to target. That of course is after last week’s hotter-than-expected CPI inflation print. He said the Fed could keep rates steady for ‘as long as needed’ — so ‘higher for longer’ returns officially, pointing to a cautious Fed while the chances of a June interest rate cut are evaporating. He also said that 12-month core PCE was likely to be little changed at 2.8%.” 

Analysts at Heraeus say gold price “overbought”, point to lack of support outside China demand 

Central bank buying has been one of the most important factors supporting the gold price this year, with the People’s Bank of China leading the way. 

In their weekly analysis, analysts at Heraeus Metals noted on Monday that the gold price was “overbought”, with demand for the yellow metal lacking support outside buyers from China: 

“In terms of demand, there appears to be little supportive action for gold outside of Chinese demand, which has been relatively strong.  

Chinese ETFs have bucked the trend of outflows experienced in the rest of the world, having seen four consecutive months of inflows. This has taken total holdings to ~67 tonnes (+32% year-on-year) which goes some of the way to explain why the gold price has reversed its typical relationship with yields and the dollar. The gold price is overbought and showing divergence with the daily RSI, so could struggle to make further headway near term”. 

Citibank recently upped its gold price forecast to $3,000 by year-end, while Goldman Sachs adjusted a similar projection for the precious metal to $2,700. 

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