Gold prices may remain under pressure in the coming weeks as investors weigh geopolitical risks against the prospect of higher US interest rates and a stronger dollar, according to market analysts.
The precious metal has found some support from safe-haven demand and central-bank buying, but analysts say elevated bond yields and expectations of tighter monetary policy continue to represent significant headwinds.
Gold was recently trading around $4,192 an ounce after recovering modestly from earlier losses, helped by lower oil prices and a softer US dollar. However, the broader picture remains uncertain as markets await fresh inflation signals from the United States.
Vijay Valecha, Chief Investment Officer at Century Financial, said the recent rebound should not be mistaken for a shift in the wider trend.
“While structural investment demand and central-bank buying have provided support, changing reserve-management strategies among some central banks could limit further upside,” he said.
Valecha noted that Kazakhstan, one of the world’s largest gold buyers, plans to reduce gold’s share of its foreign exchange reserves, potentially adding supply to the market. He also pointed to comments from US policymakers favouring a more restrictive monetary stance to contain inflation.
Markets are now closely watching US consumer and producer inflation data, along with remarks from Federal Reserve officials, for clues about the future direction of interest rates.
“A stronger than expected CPI reading, particularly in core inflation, could increase expectations of an October rate hike and trigger further downside in gold,” Valecha said.
Other analysts argue that geopolitical developments are having a more complex impact on bullion prices than in previous market cycles.
According to Waleed Said, technical analyst at GivTrade, rising geopolitical tensions do not automatically benefit gold because they can also fuel inflation, strengthen the dollar and increase expectations for higher interest rates.
“The critical question is whether fear drives investors toward bullion or toward a stronger dollar and higher-yielding assets,” Said said.
He pointed out that gold fell even as oil prices rose and geopolitical uncertainty remained elevated, illustrating how monetary factors are currently exerting a stronger influence on the market. A stronger dollar and higher real yields make gold less attractive because the metal offers no income.
Meanwhile, analysts at FOREX.com say gold and silver are testing key technical support levels after coming under pressure from soaring US Treasury yields.
“Markets are currently caught between softer inflation signals from crude and increasingly restrictive financial conditions from US Treasury yields,” said Razan Hilal, Market Analyst at FOREX.com. “If yields begin to reverse while oil remains below its September highs, some of the pressure on gold, silver and broader risk assets could begin to unwind.”
Hilal added that bond markets may provide the clearest signal for precious metals in the months ahead. If Treasury yields retreat while inflation pressures ease, gold could regain momentum. But if yields continue to climb, analysts warn that bullion may struggle to hold current levels despite ongoing geopolitical uncertainty.
Source: Khaleej Times