Gold Holds Above 4,000 Dollars Amid Fragile and Unsustainable Upside Prospects

(MENAFN- MENAFNEditorial) 

Written by Samer Hasn, Senior Market Analyst at XS


Gold rises slightly today by less than 1 percent, trading near 4,060 dollars per ounce after yesterday's declines of nearly 2.6 percent.
Gold remains in the midst of a broader downward trend, dominated by waves of short-term, unsustainable recovery. The absence of settlement prospects for the Middle East conflict and its accompanying upside risks for energy-driven inflation fuel pessimism that interest rates will stay on a rising path for an extended period, contributing to frustrating attempts by the yellow metal to recover sustainably.
On the geopolitical side, despite repeated confirmation from US President Donald Trump that the option of returning to broad strikes against Iran is unlikely, the option of maintaining the status quo carries risks of renewed military position deterioration, potentially involving ongoing risks regarding the possibility of targeting oil production and export infrastructure across the region. In fact, this is what is happening now, as we see repeated targeting and fires on oil tankers passing through the Strait of Hormuz, in addition to almost daily strikes by the Houthis in Yemen against Saudi Arabia, most notably the recent renewed hitting of the East-West pipeline. The continuation of these attacks could squander the recovery in crude supplies flowing from the region. It could make it a thing of the past, potentially sending crude prices back to their elevated peaks for an extended period.
This narrative, alongside the strength shown by the US economy and labor market and the stubbornness shown by inflation in the latest reading, maintains market pessimism regarding monetary policy paths. The market still prices in a probability exceeding 80 percent that the Federal Reserve will raise the interest rate by a quarter percentage point before the end of this year, and another hike of the same amount at least during the first half of 2027. This, in turn, helps keep bond yields near their elevated peaks, making the recovery task for Gold difficult.
However, despite those risks, investment demand recovered sharply during the third quarter, growing by nearly 83 percent quarter-on-quarter to reach 479 tons, alongside growth of nearly 9 percent for the gold jewelry industry to reach 340 tons, in addition to a rebound in central bank demand by 8 percent and 42 percent on an annual basis to reach 321 tons, according to World Gold Council numbers in the third-quarter report. These figures suggest that investors are continuing to defend the current price floor near 4,000 dollars per ounce on one hand, and that central banks' ability to resume accumulating gold reserves after the second-quarter stumble remains.
On the other hand, renewed disruptions and prolonged interruptions to global supplies, similar to the early months of the war, threaten that those flows could reverse their path. This comes as consumers seek to preserve cash liquidity to face energy-driven inflation on one hand, and as some central banks move to defend their local currencies by selling part of their reserves on the other hand. Prospects for this narrative materializing may remain present unless the war parties in the region reach a comprehensive agreement that ends the conflict. So far there is nothing to suggest that.
Accordingly, the existing balance between the rebound in institutional and consumer demand for gold and core risks related to renewed energy market disruptions and continuing inflation rises could keep gold within sideways paths, punctuated by unsustainable attempts to recover.

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