For gold to have a sustained upside momentum, prolonged geopolitical stress and US Federal Reserve’s monetary policy remain key, according to experts.
On Wednesday, gold and silver prices rebounded more than 1% after a sell off in the previous session.
Safe-haven demand, fueled by the escalating Middle East conflict that is driving global markets down, caused gold prices to surge over 1% on Wednesday.
This rise follows a more than one-week low recorded in the previous session.
Volatile market
Ending a four day rally that had been fueled by escalating geopolitical tensions, gold experienced a drop of more than 5%, briefly trading below $5,000 per ounce on Tuesday.
The resurgence of the dollar and bond yields drove the pullback.
This occurred as rising energy costs renewed inflation fears, strengthening the belief that the Federal Reserve will maintain restrictive policies for an extended period.
This outlook, in turn, poses a challenge for assets that do not generate yield.
“Also, equity losses triggered forced liquidation of metals to meet margin calls,” Ewa Manthey, commodity strategist at ING Group, said in a note.
A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers, thereby limiting demand.
At the time of writing, the COMEX gold contract was at $5,173.49 per ounce, up 1%, while silver was 1.6% higher at $84.768 per ounce.
While geopolitical factors offer a slight degree of support, near-term price movement is primarily driven by broader macro forces.
Consequently, the length of the Middle East conflict is now a key determinant.
“Prolonged escalation would favour gold, while stabilisation would leave it exposed to macro headwinds,” Manthey added.
Fed rate decision
If geopolitical tensions ease, focus will primarily shift to the US Fed easing cycle and global central bank demand.
According to the CME Group’s FedWatch tool, investors anticipate the US Federal Reserve will maintain current interest rates at the conclusion of its upcoming two-day meeting on March 18.
Gold prices have eased after touching $5,400 earlier this week.
The market is likely placing increased emphasis on the inflationary risks stemming from the conflict in the Middle East, leading to a reduction in expectations for interest rate cuts, according to Commerzbank AG’s head of FX and commodity research Thu Lan Nguyen.
The appreciation of the US dollar is understandable given recent history.
The global inflation shock in 2022, triggered by the surge in oil prices following the war in Ukraine, likely established a precedent.
At that time, the US Federal Reserve’s swift and aggressive interest rate hikes in response to inflation resulted in the US currency significantly strengthening.
Worldwide interest rate hikes led to the weakening of gold’s price throughout 2022.
“How gold will develop in the future therefore depends very much on how central banks weigh up the risks,” Nguyen added.
“If they signal that they want to wait and see how the inflationary effect of higher oil prices plays out, this would be positive for gold.”
Central bank demand
While central bank demand for gold remains a significant structural support, the momentum decreased at the beginning of the year.
Data from the World Gold Council shows that central banks purchased a net 5 tonnes of gold in January. This represents the lowest monthly figure since late 2024 and is substantially below the 2025 monthly average of 27 tonnes.
Although volatile pricing and seasonal elements likely caused the deceleration, a crucial development was the expansion of the demand base due to the arrival of new buyers.
Central and East Asia remained the focus of gold buying, with notable first net purchases since 2018 recorded by Malaysia.
Furthermore, the Bank of Korea indicated a return to gold investment after more than a decade.
Conversely, Russia stood out as the largest net seller during the month, offloading 9 tonnes.
Outlook for gold and silver
The World Gold Council observed that the prevailing geopolitical uncertainty will likely sustain the accumulation of gold by the official sector in the long term, although the monthly rate of this accumulation may fluctuate.
The baseline for gold prices is consistently supported by central bank activity, even as immediate demand experiences shifts.
Gold’s immediate outlook is balanced by opposing forces: ongoing safe-haven interest and broader macroeconomic headwinds.
Silver plunged to lows near $77 per ounce on Tuesday. “Its sharper decline reflects silver’s dual role as both a precious and industrial metal, leaving it more exposed to shifts in growth expectations, liquidity and positioning,” ING’s Manthey noted.
“Sustained upside would require either prolonged geopolitical stress or renewed Fed easing, while silver continues to exaggerate moves on both sides.”
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