Gold forecast: Middle East tensions outweigh US dollar impact – for now

Gold was easing off its earlier highs and silver had turned negative by afternoon trading in London. The dollar was clearly on top in the FX space, and US bond yields were on the ascendency. These factors were preventing gold from extended its overnight gains, after it wasted no time in reasserting itself at the centre of global markets, surging to $5,400 in the wake of fresh Middle East tensions at the weekend. The escalation between Iran and its adversaries delivered exactly what you would expect at the Asian open overnight: a sharp gap higher in both gold and oil, a risk-off wobble in equities, and renewed demand for safe haven dollar and Treasurys. From a broader perspective, this latest spike reinforces what has already been a resilient year for bullion. Any credible gold forecast must now grapple with an increasingly fragile geopolitical backdrop, sticky haven demand and still-robust central bank buying. But if we see the dollar extend its recovery, this may keep a lid on gold prices a little.

 

Geopolitics drives the latest surge

 

The attacks involving Iran and the subsequent retaliation have rattled nerves across financial markets. Oil’s jump is particularly problematic for large importers such as the eurozone, India, China and Japan, amplifying growth concerns just as inflation risks resurface. That combination tends to be toxic for equities, especially in Europe but probably not so much for US. The risk off environment is also constructive for gold outlook, but the fact that the US dollar has firmed in response, this is putting some pressure on metals prices.

 

Yet even a stronger dollar has not been enough to outweigh the impact of haven flows yet. That in itself is telling. When gold rallies despite dollar strength, it usually points to more gains.

 

Looking ahead, the near-term gold forecast hinges heavily on whether diplomacy replaces confrontation. If tensions persist, the path of least resistance remains higher for the yellow metal. Should we see a genuine de-escalation, however, some of the war premium could unwind. But for now, markets are far from pricing in any end to the conflict.

 

By the end of the week, attention will inevitably turn to US jobs data, which could shape expectations for Federal Reserve policy and inject fresh volatility into FX and commodities alike. For gold, macro data remains less relevant, and geopolitics is currently in the driving seat.

 

Central banks remain a powerful tailwind

 

Let’s not forget that structural support for gold remains firmly in place with central banks having been steady accumulators for several years now, particularly across emerging markets seeking to diversify reserves away from the US dollar. From China to Poland, central bank demand has been persistent and largely price insensitive. Unlike us traders, central banks are not trading short-term charts; they are making strategic allocation decisions. Even where the pace of buying has moderated, the broader trend has not reversed. This underpins a constructive medium-term gold forecast, especially as long as geopolitical risks remain elevated. In addition, there has also been renewed trade frictions and bouts of volatility in technology shares — including the recent so-called “AI scare,” making it an ideal macro environment for gold to thrive.

 

Technical gold forecast: Higher lows, higher targets

 

From a technical standpoint, the structure still favours the bulls. A sequence of higher lows continues to define the gold chart, reinforcing the ongoing trade that the buyers are stepping in on dips. The weekend gap higher may well attract attention, as markets have a habit of filling such gaps eventually. A firmer US dollar could help narrow it, but absent a dramatic geopolitical breakthrough, a full retracement looks unlikely in the immediate term.

 

 

On the downside, $5,250 now serves as the first meaningful line of defence on XAUUSD following last week’s breakout. Below that, $5,205 comes into view, while $5,100 represents a major former resistance level that has turned into support.

 

To the upside, the $5,400 region has been tested earlier today, before gold eased lower from there. A clean move above it would open the door towards the $5,490–$5,500 area, where the late-January sell-off originally started. Beyond that, the all-time high just north of $5,600 looms as the next psychological milestone.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R