(Kitco News) - As the ongoing conflict in the Middle East continues to roil the global economy and financial markets, gold, a traditional safe-haven in times of upheaval, is struggling to find its footing.
The gold market continues to see solid selling pressure, as prices have been unable to hold their gains above $5,100 an ounce. Despite the lack of a safe-haven bid, one market strategist said that gold prices still have room to move higher.
In a note published Monday, Bernard Dahdah, precious metals analyst at Natixis, said that gold could be struggling as markets witness the implications of a worst-case scenario, with the war closing off the Strait of Hormuz and significantly impacting the global energy market supply chain. He added that this uncertainty is supporting the U.S. dollar as the world’s current safe haven.
“There could also have been some profit-taking taking place to cover loss-making positions or margin calls in equity market investments,” said Dahdah.
Since the U.S. and Israel launched missiles against Iran a week ago, the S&P 500 has dropped more than 3%, currently trading around 6,645 points. Meanwhile, last week gold prices hit a high of $5,419 and have seen a steady decline since then. Spot gold last traded at $5,078.40 an ounce, down more than 1% on the day.
Although gold continues to consolidate above support at $5,000, Dahdah said he expects gold prices to eventually start moving higher.
“This is because of the inflationary impact that higher energy prices could have on the global economy and the resulting higher gold prices,” he said. “In such a case, we could see prices creeping up again towards the $5,500 - $5,800/oz range.”
However, providing more nuance to this outlook, Dahdah also warned investors that traditionally safe-haven demand driven by specific risk events is not sustainable.
“Once the war ends, we think that prices could drop back to their pre-war level of around $4,600/oz,” he said. “Effectively, we think that the market is currently pricing in around $450/oz of Iran war-related cost.”
