They are now in the US$5,000–5,100 range, down from $5,400 at the beginning of the attacks on Iran by the United States and Israel.
In this photo illustration, U.S. dollar banknotes and gold bars are seen in Ankara, Turkey on Jan. 29, 2021. Photo by Anadolu via AFP |
Huynh Trung Khanh, vice chairman of the Vietnam Gold Business Association, said the correction is temporary. Gold has been pressured downward by a stronger greenback, he explained.
A surge in oil prices to beyond $100 on March 8 before falling back to around $90, fueled inflation concerns and pushed the U.S. Dollar Index close to the 100-point mark.
Besides, a decline in stock markets across the U.S., Asia and Europe forced some investors and funds to sell gold to meet margin calls.
“During periods of strong market volatility, demand for cash, particularly the U.S. dollar, increases, causing funds to temporarily exit gold,” Khanh told Read.
Bui Van Huy, vice chairman of FIDT Investment Consulting and Asset Management Company, concurred with him, saying holding U.S. dollars during periods of market volatility allows investors to seize opportunities when other assets correct to attractive levels.
From a supply-demand perspective, moves by central banks have also drawn attention. The National Bank of Poland is considering selling 100–200 tons of gold to supplement its defense budget.
Overall, the trend of gold accumulation by central banks worldwide remains intact, though the People’s Bank of China’s officially published figures show only purchases of one or two tons a month.
Historically, gold prices have risen in two-thirds of cases when geopolitical tensions escalate.
The World Gold Council has said gold price movements will be too difficult to predict in the next two weeks and price swings will likely widen, with the probability of gains being 57%.
The dollar’s gains, driven by the conflict, are likely to be short-lived, which would support gold prices, it added.
From a technical perspective, market analyst Lukman Otunuga told financial data platform Kitco, the $5,000 per ounce is an important psychological level to watch.
“A weekly close below $5,000 may signal a steeper decline.
“Bulls could still fight back if that level provides reliable support. Key technical levels can be found at $5,200, $5,050, $5,000 and $4,900.”
As markets focus on energy prices, some analysts believe gold could be sensitive to U.S. inflation data to be released this week.
Investors should monitor the consumer price index report and personal consumption expenditures data, the U.S. central bank’s preferred inflation gauge.
Khanh said factors supporting gold prices over the long term remain in place, including geopolitical tensions in the Middle East, risks of disruptions to energy supply and expectations of monetary easing by the U.S.
Though its central bank might not rush to cut interest rates, markets expect two rate cuts this year, he said.
Major financial institutions such as Citi, JPMorgan and Bank of America continue to issue positive forecasts on gold, saying a scenario of a sharp decline in the precious metal is unlikely in the near future.
In its latest report following the escalation of the Iran conflict, Singaporean bank UOB said gold prices could remain volatile in the short term but long-term safe-haven demand for the precious metal remains solid.
Central banks worldwide continue to buy strongly, while individual investors are also increasing purchases of physical gold, it said.
New tensions in Iran further reinforce this safe-haven demand. The bank maintains a positive outlook and has raised its gold price forecast to $5,800 by the end of the year, potentially reaching $6,000 early next year.
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