The gold market is testing the resistance zone above 4,800 USD per ounce, in the context of cooling geopolitical tensions and lower-than-expected inflation putting pressure on the USD. However, according to experts, the resistance forces are still threatening the upward outlook for the precious metal.
In a report released on Tuesday, Mr. Simon-Peter Massabni - Business Development Director at XS. com - said the USD index has fallen to a 6-week low and is testing a support zone around the 98-point mark. He believes the greenback is under selling pressure again as expectations of a long-term peace agreement between the US and Iran increase, although initial negotiations are still difficult.
He said that the decline of the USD is not simply a technical correction, but reflects a change in market sentiment as risk appetite improves along with expectations that US-Iran tensions will cool down. This reduces the safe-haven role of the USD.
According to him, the USD index is currently at an "important crossroads". In the short term, this currency may continue to weaken or move sideways in a downward trend, as geopolitical risks cool down. However, in the medium term, the developments will mainly depend on two factors: US-Iran relations and monetary policy of the US Federal Reserve (Fed). If positive political developments are accompanied by weakening economic data, the USD may fall deeper. Conversely, if tensions escalate or economic data is positive, the greenback may recover quickly.
Despite being supported by the weakening of the USD, gold has not yet shown clear breakthrough signals.
Gold prices are still in a period of accumulation, being held back between shelter roles and pressure from a high interest rate environment and a strong USD. Geopolitical risks are still supporting factors, but monetary policy and developments in the US-Iran conflict will be the main driving force in the short term," Mr. Massabni said.
Besides geopolitical factors, gold and USD are also reacting to the possibility of policy adjustments by the Fed. Since the Iranian conflict broke out, the market has quickly eliminated expectations of interest rate cuts this year, even starting to consider the possibility of interest rate hikes due to disruptions to the energy supply chain pushing oil prices up and raising concerns about inflation.
However, despite inflation increasing in the past month, this increase is still lower than forecast. The US producer price index recently announced only increased by 0.5%, significantly lower than the expected 1.1%.
Mr. Carsten Fritsch – Commodity expert at Commerzbank said that gold prices are still well supported if inflation expectations are maintained at a controlled level.
According to him, the downward space for gold is not large as the market almost no longer expects the Fed to cut interest rates this year, but there has also been no clear signal of interest rate hikes. In that context, gold prices are unlikely to fall deeply.
He also noted that, although gold prices are accumulating, investors are taking advantage of corrections to return to the market. After a strong sell-off wave in March, cash flow has gradually returned to gold-based exchange-traded funds. Since the beginning of April, the amount of gold held by these funds has increased by another 25 tons, after recording a net withdrawal of 85 tons last month.
Meanwhile, Mr. Christopher Lewis - Market analyst said that although still optimistic about gold when the price remains above the support zone of 4,600 USD per ounce, caution is needed.
He warned that just one piece of unfavorable information in the peace negotiation process could cause gold prices to fall back.
Positive information will help reduce interest rate pressure and cool down the market. Currently, the market is starting to see positive signals from the Middle East, thereby partly relieving tensions," he said.
