Gold Weekly Forecast: Middle East crisis fails to lift XAU/USD

Gold snapped a four-week winning streak despite opening with a bullish gap.
The near-term technical outlook points to a loss of bullish momentum.
Investors will remain focused on the Middle East crisis and US data.

Gold (XAU/USD) came under heavy bearish pressure and registered weekly losses even after opening with a bullish gap on news of the United States (US) and Israel carrying out a joint attack against Iran on February 28. In the near term, investors will assess inflation data from the US and pay close attention to fresh developments surrounding the Middle East crisis.

Gold fails to benefit from escalating geopolitical tensions

Gold touched its highest level since January 30, above $5,400, at the start of the week, but reversed its direction as the persistent US Dollar (USD) strength didn’t allow XAU/USD to capitalize on safe-haven flows. Still, the yellow metal managed to close in positive territory on Monday.

On February 28, the US and Israel launched a coordinated attack on Iran, killing Iranian Supreme Leader Ayatollah Ali Khamenei and up to 40 top Iranian officials. In response, Iran targeted US assets across the Gulf and Hezbollah also announced that it launched strikes on Israeli missile defense sites.

While markets remained risk-averse, with the chaos in the Middle East spreading, surging Oil prices revived fears over inflation rising again in the US. The barrel of West Texas Intermediate (WTI) rose more than 25% on a weekly basis as the naval activity in the Strait of Hormuz came to a halt, and touched its highest level since April 2024, above $87. Additionally, macroeconomic data releases from the US came in better than expected.

In turn, market participants reassessed the Federal Reserve (Fed) policy outlook and started to price in a further delay to the continuation of monetary policy easing. The USD gathered strength as a result and caused XAU/USD to turn south. The US Dollar Index, which tracks the USD’s performance against a basket of six major currencies, advanced to its highest level since November, above 99.00. The CME Group FedWatch Tool showed that the probability of three consecutive policy holds, in March, April and June, climbed to about 70% early Friday from nearly 40% before the US-Iran war started.

The Institute for Supply Management (ISM) reported on Monday that the Manufacturing Purchasing Managers’ Index (PMI) remained in the expansion territory above 50 in February, while the inflation component of the survey, the Prices Paid Index, jumped to 70.5 from 59 in January. On Wednesday, February’s ISM Services PMI improved to 56.1, from 53.8 in January, and Automatic Data Processing (ADP) announced that Employment Change for February was 63K, surpassing the market expectation of 50K.

Scotiabank strategists Shaun Osborne and Eric Theoret note that a 25 basis points Fed rate cut is not fully priced until September, “reflecting a material softening of expectations for easing as a result of both stronger data and the US/Iran conflict.”

“The latest ISMs have been impressive, with both manufacturing and services showing a material improvement in sentiment and suggest a material re-acceleration in US economic activity,” they add.

The US Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls declined by 92K in February, missing the market expectation for an increase of 59K by a wide margin. Moreover, the Unemployment Rate edged higher to 4.4% from 4.3%. As the CME Group FedWatch Tool’s probability of three consecutive Fed policy holds declined to 60% after this data, Gold managed to keep its footing heading into the weekend.