Gold Price Prediction: Short-Term Upside Limited Amid Geopolitical Tensions
In the wake of escalating Middle East conflicts, gold prices are projected to experience constrained upward movement in the near term, according to Praveen Singh, Head of Currencies and Commodities at Mirae Asset ShareKhan. This analysis comes as global markets navigate a complex web of geopolitical risks and economic indicators.
Current Market Performance and Weekly Trends
At the time of reporting, spot gold was trading at $4,865, marking a slight decline of approximately 0.2% for the day. However, the precious metal demonstrated resilience in the week ending April 2, closing with a substantial weekly gain of 4.04% at $4,678. This surge was driven by bargain hunting, short covering activities, and easing US Treasury yields amid expectations of de-escalation in the Iran conflict.
Geopolitical Factors: Oil and Middle East Conflict
The geopolitical landscape remains volatile as the April 7 deadline set by US President Trump for intense attacks on Iran approaches. US allies, including Pakistan, Egypt, and Turkey, are actively pushing for a last-minute deal to secure a 45-day ceasefire, as reported by Axios. Despite these efforts, Iran has rejected the ceasefire proposal, citing a lack of legal and international guarantees against future attacks.
Meanwhile, military actions continue unabated. Israel has targeted Iran's largest petrochemical facilities, while the UAE, Kuwait, and Israel have reported Iranian attacks. In a significant development, Iran has exempted Iraq from shipping restrictions, allowing for up to 3 million barrels per day of oil cargoes.
Crude oil prices, which had been correcting on ceasefire possibilities, are once again attracting bids, exerting downward pressure on gold prices.
US Economic Data Roundup
US ISM Services Index: The March reading came in at 54, falling short of the 54.90 estimate and below the prior reading of 56.1. The Employment Index unexpectedly contracted, while prices paid were hotter-than-anticipated.
US Nonfarm Payroll Report: Released on April 2, the report showed employers added 178,000 jobs in March, significantly surpassing the forecast of 65,000 jobs and the prior figure of -133,000. The unemployment rate edged lower from 4.4% to 4.3%, against forecasts and prior readings of 4.4%. Two-month payroll net revision stood at -7,000 versus the prior -69,000.
However, average hourly earnings rose 0.2% month-over-month (forecast 0.3%, prior 0.4%) and 3.5% year-over-year (estimate 3.7%, prior 3.8%). Average weekly hours at 34.2 also lagged the forecast of 34.3. Boosted by March payroll data, the three-month average change improved to 68,000 from the prior 6,000. Overall, the report was deemed decent, though risks from the ongoing Iran war persist.
S&P Global US Composite PMI: The March final reading came in at 50.3, below the forecast of 51.4.
US Dollar Index and Treasury Yields
Last week, two-year US Treasury yields fell by nearly 3% to 3.79%, while ten-year yields declined by 2.7% to 4.30%. Consequently, the US Dollar Index eased by 0.1% to 100.02. At the time of writing, the index stood at 99.96, down 0.05%, with two-year yields up 7 basis points and ten-year yields rising 2 basis points.
ETF Holdings and Central Bank Activity
Total known global gold ETF holdings have shown a slight increase. As of April 3, holdings rose from 97.97 million ounces—the lowest since December 10—to 98.35 million ounces, the highest since March 23. Despite this uptick, holdings are still down by 0.50 million ounces year-to-date.
Central banks continued their gold purchases in February, stepping up buying to 19 tons following a 5-ton purchase in January. The National Bank of Poland bought 20 tons, while Russia and Turkey each sold 6 tons. Notably, Turkey has sold or swapped nearly 118 tons of gold in March and April to defend the Lira and manage forex reserves.
CFTC Positioning and Fed Rate Cut Expectations
Money managers increased their bullish gold bets by 1,097 net-long positions to 93,872 in the week ending March 31. Long-only positions rose by 796 lots to 120,530, while short-only positions fell by 301 lots to 26,664 lots.
Implied overnight rates indicate almost zero chance of a rate cut this year, a shift from expectations of two cuts seen around seven weeks ago, which is bearish for gold.
Central Bank Watch and Upcoming Data
Kevin Warsh's nomination hearing to become Fed Chair is scheduled for April 16. Meanwhile, ECB's Sleijpen noted that the bank's next discussion could involve a decision between a rate hike and a hold.
Key upcoming US data includes:
- ADP weekly change (April 7)
- Durable goods orders (April 7)
- NY Fed 1-year inflation expectations (April 7)
- FOMC minutes of March 18 meeting (April 8)
- Real personal spending (April 9)
- Q4 final GDP (April 9)
- March CPI (April 10)
- University of Michigan sentiment and inflation expectations (April 10)
Gold Price Outlook and Scenarios
The somewhat encouraging US nonfarm payroll report for March has alleviated job market concerns to an extent, which is negative for gold. However, it's important to note that job gains were influenced by favorable weather, meaning concerns may linger until a trend is established.
The shift from expectations of two rate cuts to almost none this year presents a bearish scenario for the metal. Additionally, central banks appear to be slowing their gold purchases this year.
A convincing ceasefire with Iran could revive the possibility of rate cuts this year. In such a scenario, a sharp decline in oil prices might boost gold to test resistance around $4,840. A decisive breach could propel the metal to $5,000. However, considering the US March job report, upside potential is expected to be limited and potentially short-lived unless oil prices settle at significantly lower levels.
Conversely, the absence of a ceasefire will weigh on gold, potentially testing key support levels around $4,550 to $4,400. A prolonged war could force additional central banks to sell gold to meet liquidity requirements, stabilize exchange rates, or cover defense expenses.
Overall, gold remains somewhat vulnerable in the short term with limited upside, but maintains a bullish outlook in the medium-to-long term due to strong structural fundamental supports.
Disclaimer: Recommendations and views on the stock market, other asset classes, or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India.
