Gold News: Rising Oil, Sticky Inflation and the Fed Cloud the Outlook

Gold Set for Weekly Loss Despite Friday Bounce

Spot Gold is trading higher on Friday, but showing little reaction to today’s weak U.S. labor market data. The market opened higher overnight and has moved very little since then, suggesting it’s being underpinned by the activity in the Middle East. However, we can’t even be certain of that because it’s been largely influenced by soaring Treasury yields and a stronger U.S. Dollar most of this week. Even with today’s slight rise, gold is set for a weekly drop as inflation fears offset safe-haven demand.

Central Banks Still the Foundation

Let’s look at the market from the top-down. The main support remains the major central banks’ long positions. Now we can’t say for certain if they were buyers in February and if they are adding to their positions in March until the data is verified and released, but prices were attractive last month so we don’t think it was a good time to liquidate positions. We think that with their commitment to the buy side for the long-run, they were likely buyers.

War Supports, But Speculators Are Cautious

We also think the war in the Middle East is helping to underpin prices to prevent a sharp sell-off, but after a week of fighting, we see no evidence of speculators chasing the market. However, they are respecting support areas, meaning they are aware of both the impact of the geopolitical situation and value. Buying pressure may increase if traders start to price in the possibility of a prolonged war, however, because this will create uncertainty.

Oil and Inflation Cap the Rally

Capping gains this week are inflationary fears due to rising oil prices. Although gold is supposed to provide protection against long-term inflation, it is usually stronger when rates are low, since it is a non-yielding asset. You see, it’s not only a safe-haven asset at times, it’s also an investment and it competes with yielding assets like Treasuries.

This week, investors didn’t buy U.S. Treasuries for safe-haven protection, they sold them, driving yields higher in anticipation of a jump in inflation due to soaring oil prices. The higher oil rises and the longer it stays elevated, the more likely the Fed will hold interest rates steady. This could weigh on gold prices because the market has been pricing in at least two rate cuts this year. And as of today, March and June cuts are likely off the board, making July the likely candidate for the first cut in 2026.

Consolidating in a Key Zone

Technically, the market appears to be consolidating inside a key retracement zone at $5,002.31 to $5,143.89 after hitting its low for the week at $4,996.27 on Tuesday. However, I don’t think it has a chance at an upside breakout until it can clear a pivot at $5,207.97 with increasing volume.

On the downside, the 50-day moving average at $4,868.95 remains an important target and value indicator.

Sell the Rally, Buy the Dip

This week’s price action suggests traders are in both “sell the rally” and “buy the dip” mode. They are likely to stay in this position until they get some clarity on how long the war will last and how long the crude oil market will remain a threat to inflation and the Fed’s plans to cut rates.

More Information in our Economic Calendar.