Gold rebounds 1% on Mideast uncertainties; can prices sustain upward momentum?

Gold bounced back on Friday, recovering from a drop of more than 1% in the prior session, as investors flocked to the safe-haven metal amid escalating uncertainty surrounding the widening conflict in the Middle East.

Gold on COMEX rose 1% to $5,128 per ounce at the time of writing. 

However, the metal is on track to break a four-week winning streak, having declined by about 3% this week.

This loss is attributed to increasing inflation worries, which have been fueled by both dimming prospects for a rate cut and higher energy costs.

Additionally, the dollar’s surge this week also dented demand from overseas buyers.

A stronger dollar makes commodities priced in the greenback more expensive. 

Escalating US-Iran conflict and upcoming data

The conflict between the US, Israel, and Iran has intensified, now in its seventh day.

On Thursday, Iran launched missile and drone attacks across the Gulf, hitting an oil refinery in Bahrain.

Concurrently, Israel continued airstrikes on Tehran, and the US suspended operations at its embassy in Kuwait.

US President Donald Trump revealed that Iranian officials attempted to contact him to negotiate an end to the conflict, but he rejected the overtures, stating it was "too late" and that the US is actively pursuing the destruction of Iran.

Despite the US position, Iranian Foreign Minister Abbas Araghchi stated that Tehran has neither sought nor intends to negotiate a ceasefire. 

The Islamic Revolutionary Guard Corps further warned that the retaliatory strikes are expected to escalate in the coming days.

Meanwhile, market focus is also on upcoming US economic data.

Traders are anticipating the release of the US Nonfarm Payrolls (NFP), with consensus expectations set around 59,000 for February, following a strong January reading of 130,000. 

Additionally, retail sales are projected to decline by 0.3% month-over-month in January, after remaining flat the previous month.

This week, the US is poised to implement a temporary global tariff of 15%, an increase from the previous 10% rate. 

This change follows the Supreme Court's decision to invalidate the majority of the earlier levies that were put in place by Donald Trump. 

According to Scott Bessent, this tariff is expected to potentially return to its former levels within five months, pending the progress of ongoing new trade investigations.

Technical outlook

Gold is trading near $5,130, and the daily chart shows a continuing bullish bias, as the price is within an ascending channel, Akhtar Faruqui, editor at FXStreet, said in a report.

“The near-term bias is mildly bullish as price holds above the rising 50-day Exponential Moving Average (EMA) and continues to respect the cluster of recent highs rather than extending the prior correction,” Faruqui said. 

The short-term bearish momentum appears to be moderating, as indicated by the nine-day Exponential Moving Average (EMA) flattening just above the current price, he said. 

However, underlying buying pressure persists, evidenced by the 14-day Relative Strength Index (RSI) staying above its midline at 53.

If gold prices break above $5,140 per ounce level, further upside is possible with an eventual target around $5,480 per ounce, followed by the all-time high of $5,598 per ounce hit on January 29. 

“On the downside, the initial support lies at the lower boundary of the channel at $5,080. A break below the channel would expose the 50-day EMA at $4,883,” Faruqui added. 

Additionally, on Thursday, the CME Group announced a reduction in the initial margin for its COMEX 100 gold futures, lowering it from 9% to 7%.

Simultaneously, the margin on its COMEX 5,000 silver futures was also cut, decreasing from 18% to 14%.

As for silver, prices on COMEX were last at $83.853 per ounce, up 2% from the previous close.