Precious metals rise; prices likely to consolidate amid lack of momentum

The ongoing conflict in the Middle East has not substantially increased safe-haven demand in both gold and silver.

The price action suggests that the precious metals may need more time to consolidate. 

Bullion prices saw a rise on Thursday, supported by a softer dollar and increased investor demand for the safe-haven asset amid the escalating Middle East conflict.

However, prices have remained below $5,200 per ounce after marching above $5,400 an ounce when the markets opened on Monday. 

Not enough momentum

In an interview with Kitco News, Michele Schneider, chief market strategist at MarketGauge, stated that prior to the US missile attacks over the weekend, she did not anticipate enough momentum for gold prices to surpass the $5,400 resistance level.

She also expected that silver's gains would be restricted below $100.

Following significant selling pressure after reaching their respective resistance levels, gold prices have tested support at $5,000 an ounce, and silver briefly dipped below $80 an ounce.

Despite a rebound from recent lows, Schneider suggests the current price volatility is indicative of a wider consolidation phase. 

She believes the market's next significant direction will be driven less by immediate geopolitical events and more by fundamental, structural changes occurring in financial markets.

“The one caveat is if this evolves into a much larger, prolonged conflict, then all bets are off. I think we will see much higher oil prices and much higher gold and silver prices,” she said.

The COMEX gold contract last traded at $5,183.66 per ounce, up 1%, while silver was at $84.805 an ounce, up 2% from the previous close. 

Gold became more affordable for buyers using other currencies as the US dollar retreated from the more than three-month high it reached earlier this week.

Geopolitical tensions simmer

Meanwhile, the conflict between the US and Iran intensified significantly on Wednesday.

The escalation followed a US submarine's sinking of an Iranian warship near Sri Lanka, which resulted in at least 80 fatalities, and NATO's destruction of an Iranian ballistic missile aimed at Turkey.

This sharp widening of the war comes five days after the US and Israel began a military campaign that has killed hundreds and destabilized global markets. 

Furthermore, the emergence of the powerful son of Iran's slain supreme leader as a potential successor suggests that Tehran is unlikely to yield to pressure.

Gold, a traditional safe-haven asset, has seen its value climb about 20% this year, hitting consecutive record highs.

This surge is set against a backdrop of increased global political and economic instability.

In related news, US President Donald Trump has officially nominated former Federal Reserve Governor Kevin Warsh to be the next Chair of the US central bank. 

This nomination moves the president closer to having a Fed chief who may favor interest rate cuts.

Market expectations, according to CME Group's FedWatch tool, are for the Fed to keep interest rates unchanged on March 18.

Investors are currently focused on key economic data releases: the weekly US jobless claims data expected later today, and the US employment report for February due on Friday.

Risk of attractive bond valuations 

Schneider noted that the appeal of bond markets presents the most significant near-term risk for gold and silver. 

According to her, the decline in 10-year Treasury yields to under 4% last week suggests investors are re-evaluating capital allocation strategies amidst current macroeconomic uncertainty.

Given rising worries about credit markets and the stability of global financial systems, Schneider observed that bond markets might be starting to serve as an alternative haven.

“What I think we have emerging is a sea change,” she said. “Speculators and bond traders could start looking toward bonds as a safety net more than gold.”

Schneider said this change stems from increasing concern regarding the credit system and the potential for governments to prioritise financial stability over anti-inflation efforts should the economic situation worsen.