Gold prices experienced a sharp decline on Monday, as geopolitical tensions in the Middle East appeared to ease and traders shifted their focus to upcoming U.S. economic data that could provide insights into the Federal Reserve's monetary policy outlook. The precious metal fell more than 2% to trade near $2,345 an ounce, ending a five-week rally, the longest such streak in over a year.
The retreat in gold prices comes amid a perceived easing of tensions between Israel and Iran, following recent attacks between the two nations. Tehran has played down the impact and significance of Israel's recent strike, which has taken some risk premium out of the market, according to Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney. The bearish sentiment on oil on Monday also supported the idea of easing tensions in the Middle East.
As the geopolitical landscape stabilizes, traders are now turning their attention to U.S. economic data. The personal consumption expenditures price index, set to be released on Friday, is projected to show an increase in the annual rate to 2.6% in March, up from 2.5% in February. A higher-than-expected reading could bolster the case for the Federal Reserve to delay rate cuts, a scenario that would typically weigh on gold, as the metal does not pay interest.
Despite the recent pullback, gold remains almost 15% higher year-to-date, with gains supported by central bank buying and strong demand from Asia, particularly China. The precious metal has risen despite advances in the U.S. dollar and 10-year Treasury yields, factors that would usually act as headwinds. In light of this resilience, banks such as Goldman Sachs Group Inc. have been raising their price targets for gold.
Broker SP Angel noted in an email dispatch that "many gold miners will be forward selling into the new high price levels with the influx of new metal into futures markets likely to temper further price rises. The ability to secure futures prices of $2,373 an ounce will likely bring in substantial tonnages of gold from miners looking to secure profits in the face of inflation."
In other precious metals, silver experienced a sharp decline of about 4.3% after a four-week surge, while palladium and platinum also traded lower. The U.S. dollar index was a bit firmer, and Nymex crude oil prices were near steady, trading around $83.00 a barrel.
On the technical front, gold futures bulls maintain a solid overall near-term technical advantage, with a nine-week-old uptrend in place on the daily bar chart. However, the bears' next near-term downside price objective is to push futures prices below solid technical support at $2,250.00. For silver, bulls also have a solid overall near-term technical advantage, but are fading slightly. Prices remain in a nine-week-old uptrend on the daily bar chart, with the next upside price objective being to close May futures prices above solid technical resistance at $30.00.
