On Friday, spot gold broke above the $2,400 mark on reports that Israel is bracing for a direct and unprecedented attack by Iran on government targets as soon as Saturday. However, the metal lost buying momentum after hitting a fresh record high of $2,431 to settle lower, closing with a loss of 1.37% at $2,344 on Friday. Despite this, it was up nearly 0.60% for the week, marking a fourth consecutive weekly gain.
Geopolitical Watch: Heightened Tensions
The US Dollar Index surged 0.70% on Friday to settle at 106.01, gaining 1.70% for the week. According to US intelligence reports cited by the Wall Street Journal, Iran may launch an attack on Israeli soil within the next 24 to 48 hours. President Joe Biden has pledged strong support for Israel, with Israeli Foreign Minister Israel Katz vowing swift retaliation in the event of an attack. The possibility of joint retaliatory strikes with Israel has not been ruled out by the US administration.
The geopolitical tensions are supportive for gold, although significant volatility could result from concerning headlines.
Data Round-Up: Inflation Figures Impact Yields
US yields and the Dollar Index were influenced by the US CPI inflation data. The core CPI rose 0.40% for the third consecutive month, exceeding forecasts, while the headline CPI accelerated to 3.50% on a year-on-year basis. The US PPI report was relatively muted, with the final demand month-on-month figures slightly below forecasts. The European Central Bank hinted at a possible interest rate cut in June, which is seen as favorable for the Dollar Index.
Fedspeak: Expectations and Uncertainties
Federal Reserve officials expressed varying views on inflation and monetary policy. Some officials saw the recent inflation data as concerning, while others anticipate a waning of inflationary pressures this year. The Middle East instability and escalating oil prices remain unpredictable factors for the Fed to consider.
Data Next Week: Focus on Major Economic Reports
Upcoming major data releases include retail sales, housing starts, industrial production, and other key indicators in the US, UK, Eurozone, and China. These reports are expected to provide further insights into the economic conditions across these regions.
China Factor: Central Bank Gold Purchases
Central banks, especially the People’s Bank of China, continued to add to their gold reserves in March. The strong buying support from China has been a key factor contributing to the gold rally. Additionally, a Chinese ETF that owns gold companies saw a significant increase in its premium over underlying assets, indicating strong investor interest in gold-related investments.
Outlook Next Week: Gold Volatility and Support Levels
Gold volatility is expected to persist due to conflicting forces of yields and geopolitical tensions. Inflation hedging remains a prominent theme, with the yellow metal potentially testing resistance at $2,500. Dip buying strategy is likely to continue as investors view gold as a safeguard against uncertain geopolitical scenarios.
Additional Insight: Gold’s traditional role as a safe-haven asset during times of geopolitical unrest is being reinforced by the current tensions between Iran and Israel. Central bank purchases and strong investor interest in gold-related assets, particularly in China, are also contributing to the metal’s upward momentum. The upcoming economic data releases will provide further clarity on the global economic outlook and their potential impact on gold prices.
