By: Kitco news

After a relatively quiet week, gold has managed to reclaim the $5,000-an-ounce level ahead of the weekend as investors seek insurance to hedge against geopolitical uncertainty and chaos in the Middle East if America launches an attack on Iran.

Gold’s push back above what has become a critical psychological level comes as President Donald Trump has sent aircraft carriers, fighter jets, and surveillance planes to target Iran, representing the biggest accumulation of American firepower in the region since the Iraq War.

However, analysts note that, so far, gold’s safe-haven allure has been limited, as prices are looking to end the week with a modest 0.5% gain.

“The gold market’s lack of reaction as it continues to pivot around USD 5000 highlighting the market skepticism about whether this build up is a massive bluff to force Iran to yield or whether he is prepared to bring affordability back on the agenda in the U.S. as gasoline prices rise during a conflict,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank.

In a note Friday, Bernard Dahdah, Precious Metals Analyst at Natixis, said that gold prices could rise by as much as 15% if the U.S. launches an attack on Iran.

“Much of the price increase would take place in the first couple of weeks. After which, we expect that prices would start coming off as the market has visibility of the implications and adapts," he said. "Given prices are going sideways, we estimate this could mean $5,500-$5,800/oz in the two weeks following the start of an attack."

At the same time, Razan Hilal, Market Analyst at Forex.com, pointed out that the potential for a new conflict in the Middle East is just one factor supporting investor sentiment toward gold.

“Risk-off sentiment remains the dominant theme across global markets. Concerns surrounding AI-sector volatility, rising geopolitical frictions, and US–Middle East tensions continue to sustain demand for defensive assets,” she said in a note. “This environment has kept dip-buying interest in gold and silver intact.”

Along with gold’s safe-haven appeal, the precious metal is also attracting bids as a monetary asset, as the latest U.S. economic data showed dismal economic activity in the fourth quarter and stubborn inflation pressures.

The U.S. Bureau of Economic Analysis (BEA) said Friday that its first reading of fourth-quarter Gross Domestic Product (GDP) showed that the economy expanded by 1.4%, following a 4.4% increase in the third quarter.

At the same time, the BEA said that core inflation remained close to 3% at the end of the year.

Analysts have said that this is a positive environment for gold, as the weak economy could force the Federal Reserve to cut interest rates even as inflation remains elevated. This would push real yields lower, reducing gold’s opportunity cost as a nonyielding asset.

However, despite the data, some analysts note that U.S. monetary policy is not on a clear-cut path. Minutes from the Federal Reserve’s January monetary policy meeting indicated that the committee remains reluctant to ease interest rates.

David Morrison, Senior Market Analyst at Trade Nation, said that, in the current environment, gold is marching to the beat of its own drum.

“This means that it may need to consolidate for longer to help bring the MACD back down to more neutral levels. Then the conditions may be right for another rally,” he said. “Gold is now comfortably back above $5,000 per ounce, having dropped below $4,850 on Tuesday. But it is still consolidating in a sideways move around the $5,000 mark, and there’s no indication that it is about to take off to the upside and build sufficient momentum to retest the highs from the end of last month.”

Looking at gold’s technical picture, some analysts have said that the first major resistance level comes in at $5,100 an ounce.

“Investors have been left on edge after Trump warned that Iran must make a deal over the nuclear program, warning that bad things would happen if the 10–15 day deadline was missed. Growing fears of a potential major US strike against Iran are likely to keep market players on high alert, supporting appetite for safe-haven assets,” said Lukman Otunuga, Senior Market Analyst at FXTM. “A strong weekly close above $5000 may open a path toward $5100 and higher. Weakness below $5000 could see prices test $4900 and $4850.”

Alex Kuptsikevich, Chief Market Analyst at FxPro, said that he is watching critical resistance at $5,100 an ounce.

“Since the beginning of February, gold has been forming a sequence of higher lows, a clear signal that position buyers are becoming less patient. At the same time, however, selling in gold has increased as it approaches $5,100. Perhaps it is only worth discussing further bullish prospects after a confident consolidation above this mark. At the same time, we continue to believe that the bullish rally, which lasted more than three years, has ended,” he said. “For now, we see a scenario similar to 2011, when there were also many attempts to return the precious metal to growth. A similar initial drop of more than 20% later in 2011 and in 2012 was recovered by four-fifths, but it took nine years to break the record. Applied to current prices, similar resistance is around $5,300, but we see that even $5,100 is a tough nut to crack.”

With a very light economic calendar next week, markets will be sensitive to comments from Trump during his State of the Union address. Markets will also be paying close attention to geopolitical headlines regarding the growing uncertainty in the Middle East. U.S. Consumer Confidence data and the Producer Price Index are the only reports likely to garner much attention next week.