Gold slides on prolonged Mideast conflict, silver struggles as Fed holds rates

Gold prices fell in early European trading on Friday, as markets saw fears rise of a prolonged Middle East conflict. This comes at a time when major central banks, including the Federal Reserve, ECB and the Bank of England, warned this week that a prolonged conflict could have significant implications for inflation and thus monetary policy. Reports suggest the US might launch new military attacks on Iran. This renews worries for market participants that the situation will get even worse and lead to more fighting. Due to the US dollar being seen as the safest money to hold during scary times, these tensions actually make the dollar stronger. However, when the dollar is strong and the world is focused on this type of conflict, it usually weighs on the price of gold. Add to that the inflation picture and gold bulls may struggle in the near-term until clarity is forthcoming. Technical analysis suggests the structural shift from bullish to bearish is evident. Gold has broken below several key horizontal support levels, most notably the $4,700 and 4,668 handles. The major psychological resistance level of 4,500 stands as the ultimate “line in the sand” for bulls. After a brief corrective bounce on April 30, the price failed to reclaim the 4,620 area, resulting in a sharp sell-off during the early May 1 sessions. “As long as Gold remains capped by the 4,601-4,615 zone, the short-term outlook remains decidedly bearish,” according Oanda-MarketPulse analyst Zain Vawda. Silver trades flat at around $73.70 on Friday. The white metal consolidates as investors await clarity on the US interest rate outlook, for which investors will focus on speeches from Federal Reserve officials who are allowed to speak on the monetary policy, following the completion of the blackout period after the policy announcement on Wednesday. In the policy meeting, the Fed decided to leave interest rates unchanged in the 3.50-3.75% range, as expected. Fed Chair Jerome Powell stated in the press conference that four members of the rate-setting committee dissented from the hold decision, of which three called for a move away from the easing bias. Currently, the CME FedWatch tool shows that the Fed will hold interest rates steady at their current levels by the year-end. Theoretically, the Fed maintaining the status quo for longer limits the upside in non-yielding assets, such as silver. Meanwhile, de-anchored global inflation expectations due to higher energy prices in the wake of Middle East conflicts, a scenario that discourages central banks from easing monetary conditions, are likely to keep the silver price under pressure. In the European trade, the WTI crude oil price trades 0.5% higher above $103 due to the prolonged closure of the Strait of Hormuz, a vital passage to almost 20% of global energy supply. XAGUSD is on track for its second consecutive negative week, as the hawkish tilt by the Fed provided additional support to the US dollar. Beyond that, Fed Chairman Jerome Powell, whose term expires on May 15, vowed to stay as Governor, as a sort of hawkish counterweight to the likely pressures by US President Donald Trump on the next Fed chief, Kevin Warsh, to slash interest rates. (Source: OANDA) The post Gold slides on prolonged Mideast conflict, silver struggles as Fed holds rates appeared first on Financial Mirror.