Gold price outlook: Huge volatility seen amid geopolitical uncertainty

Spot gold extended its rally to the ninth straight day on January 29, as it hit a fresh all-time high of $5,595 overnight on geopolitical tensions primarily concerning Iran. The possibility of the Trump Administration nominating a dovish Fed Chair next week also boosted the metal.

 

It is to be noted that the US President Donald Trump has threatened Iran with dire consequences if the nation does not come to the table to conclude a nuclear deal soon. The deal includes a permanent end to all enrichment of uranium, limits on ballistic missiles, and ending support for proxy groups in the Middle East.

 

However, the metal and other commodities fell sharply as Iran, though remaining defiant, reportedly seeks to avert the US strike by opening a diplomatic channel for talks.

 

Spot gold slumped to $5,104 before finding a bid. US equities slumping on tech spending and RoI concerns also weighed on the precious metals.  

 

At the time of writing, it was trading at $5,264, down nearly 2.5 per cent for the day, while the MCX March at ₹1,86,530 was up over 5 per cent as traders discount the possibility of a duty hike on precious metals in the upcoming Budget on February 1.

January 28 FOMC meeting:

• As widely anticipated, the FOMC kept the benchmark rate in a 3.5 per cent-3.75 per cent range in a 10-2 voting. Governors Waller and Miran dissented in favour of a 25 basis points (bps) cut. The Committee was somewhat upbeat on the economy and sees the job market stabilising. It upgraded view of economy noting that activity has been expanding at a solid pace.
• Overall, the Fed leaned slightly hawkish.
• WGC on gold demand trends in 2025:
• The World Gold Council (WGC) noted in its latest gold demand trends report that total gold demand, boosted by strong investment flows, surpassed 5,000 tonnes in 2025 for the first time on record.
• Central banks bought 863 tonnes of Gold during the year, after three straight years of buying over 1000 tons.
• Global gold ETF holdings rose by 801 tonnes, which is the second-strongest annual increase on record, as bar and coin demand also climbed to a 12-year high.

Geopolitics watch:

Iran is making diplomatic efforts to diffuse the crisis. Iran’s foreign minister, Abbas Araghchi, will travel to Ankara for talks. Turkish diplomats seek to convince Tehran to offer concessions over its nuclear program.  Turkey’s president, Recep Tayyip Erdoğan, has proposed a video conference between Donald Trump and his Iranian counterpart, Masoud Pezeshkian. 

ETF and COMEX Inventory:

• Total known gold ETF holdings of gold stood at of 100.60 MOz as of January 28 and is at the highest level since August 2022.
• Net gold ETF holding has risen by over 51 tons so far this year.

Data roundup:

The US trade deficit widened in November from the lowest level since 2009. The goods and services trade gap surged from $29.2 billion to $56.8 as imports jumped 5 per cent on increased shipments of pharmaceutical preparations and capital goods, while the value of exports fell 3.6 per cent in November. Weekly job reports were mixed.

China’s gold imports:

China's net imports of gold via Hong Kong fell by 24 per cent month-on-month (M-o-M) from 16.16 tons in November to 12.205 tons in December. Total gold imports also fell 7.3 per cent M-o-M.

Upcoming data and events:

• Major US data on tap in the near term include PPI final demand (January 30), ISM manufacturing (February 2), JOLTs job openings (February 3), ADP employment change and ISM services (Feb. 4), and nonfarm payroll (Feb. 6).
• Investors will also monitor Germany's employment (Jan. 30), Eurozone's 4Q advance GDP (Jan. 30), composite and services PMIs (Feb. 2), CPI (Jan. 4), and UK's PMIs (Feb. 2).
• China's manufacturing and nonmanufacturing PMIs (Jan. 31), and RatingDog manufacturing PMIs (February 2) and services PMI (Feb. 4) will also entertain traders.
• The European Central Bank will deliver its monetary policy decision on January 5 wherein it is expected to keep its rates unchanged.
• The Bank of England will announce its monetary policy on Feb. 5.

Outlook:

• Gold is expected to remain well bid into the weekend on the escalating geopolitical situation.
• President Trump may nominate Rick Rieder, the BlackRock global fixed income CIO, as the next Fed Chair. Rieder has called for cutting rates aggressively, which is seen as dovish; thus, his appointment may weigh further on the struggling US Dollar. Gold will benefit.
• Worries over the technology sector will ultimately support the metal.   
• However, in the present scenario, the major focus is on geopolitical developments. As the Middle East situation remains precarious, downside in the metal is expected to be limited.
• Dip buying is advisable. Support is at $5000/$4900. Resistance is at $5400/$5600.
• A clear resolution of the Iranian crisis can take the metal to the $4,700 mark.

 

(Disclaimer: This article is by Praveen Singh, head of currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.)