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Gold Pulls Back from all Time Highs but Remains Bullish on Middle East Tensions

Gold remains on the back foot days after rallying to record highs of $2431 an ounce. The rally to record highs came on the markets reacting to growing tensions between Israel and Iran last week. While Tehran did launch drones and missiles at Israel over the weekend in retaliation to an Israeli attack on its consulate on April 1, it was not enough to push gold back to record highs.

Gold Pull Back

The precious metal tumbled by more than 4% and has since struggled to power back to record highs. Nevertheless, it remains well supported above the $2300 an ounce level and is seen consolidating near the $2350 an ounce level as participants continue to digest over-the-weekend events. The fact that Israel has yet to respond to the attacks continues to offer support for more downside action.

However, with geopolitical tensions in the Middle East remaining at an all-time high, the prospect of gold rallying back to all-time highs is still high. The deep pullback is already interpreted as a knee-jerk reaction on traders taking profits on the metal, gaining more than 20% year to date. Likewise, with sentiments high that Israel is likely to retaliate to Iran’s actions, the prospect of the haven rallying on strong demand remains intact.

Gold has continued to trade at elevated levels even on the dollar, strengthening on diminishing expectations that the US Federal Reserve will cut interest rates soon. With the US economy remaining solid and resilient amid the high-interest rate environment, bets on interest rate cuts have declined significantly, especially after the continued growth in strength in the labor market.

Higher interest rates typically work against gold, given that the metal does not pay interest. During periods of high-interest rates, it is common for investors to turn to securities such as bonds and treasuries that yield interest payments. While gold’s impressive run has been supported by growing expectations that the Fed will cut interest rates, its growing demand as a safe haven has been the force behind recent rallies.

Gold Long-Term Outlook

Following the recent pullback from an all-time high, the appetite for the precious metal is expected to increase, which could see it powering back to an all-time high. Bets that the bullion price will continue rising have recently increased in response to the unending geopolitical tensions. Analysts at UBS Group AG have increased their yearend outlook of the metal to $2,500

Analysts at JPMorgan also share similar sentiments, reiterating that gold could average $2,500 per ounce in the fourth quarter in response to the growing tensions in the Middle East. Analyst Gregory C. Shearer believes geopolitical tensions, complimented by prohibitions on Russian gold, should continue to support elevated prices.

Silver has also gained ground in response to the growing demand for a safe haven amid the tensions in the Middle East. The white metal has gained more than 10% since the start of the year to three-year highs. Metal has vast industrial applications, such as being used for solar panels in computing and jewelry, so demand for it has skyrocketed amid a robust global economy. A booming global economy works in favor of silver.


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