Changes in global economic environment also unfavourable for gold

As the geopolitical crisis remains unresolved and appears increasingly complicated, necessitating greater clarity and understanding of the situation, the financial markets exhibited some stability last week. The next steps are uncertain, particularly as the 60-day deadline regarding the war with Iran outlined in the War Powers Resolution has lapsed. The US administration, however, asserts that a ceasefire has been in effect since April, signalling the end of the conflict. This could explain why, following the April 7 ceasefire, the US Dollar has depreciated, while the US stock market has gradually risen into positive territory, reaching new all-time highs, buoyed by record-breaking profits in the technology sector. Nonetheless, the ongoing rally in the stock market lacks guarantees due to persistent geopolitical uncertainties that could resurface at any moment. Rising energy prices continue to pose significant concerns for the global economy. In a recent development, Iran has expressed its readiness to reopen the Strait of Hormuz, leading to a slight decline in energy prices. However, full assurance is necessary to ensure the normal shipping lanes for commercial activities, which are currently impacting global economies. After two months, substantial damage has been inflicted, and even if a resolution is reached soon, recovery from the war’s effects may take three to six months. Interestingly, the economic data released by the US last week indicate that the economy is on the upswing. However, inflationary pressures are evident, driven by rising gasoline prices linked to increased oil prices in the international market, which in turn are raising retail and food service costs. In other news, the Federal Reserve opted to maintain its interest rates last week. The Fed noted that economic activity is expanding at a robust pace, though job growth has been relatively modest, with only minor shifts in the unemployment rate in recent months. The 12 voting members of the Federal Open Market Committee (FOMC) observed that inflation has risen, primarily due to a surge in energy prices. This was Fed Chairman Jerome Powell’s final meeting, as Kevin Warch is set to take over as chairman after his confirmation by the Senate Banking Committee on April 29. As projected last week, the Bank of Japan (BOJ), European Central Bank (ECB), and Bank of England (BoE) all kept their interest rates steady. The State Bank of Pakistan (SBP), on the other hand, raised its policy rate by 100 basis points, from 10. 5% to 11. 5%. Despite mounting inflationary pressures in the Eurozone, the ECB opted for a unanimous decision to hold rates steady, as did the Bank of England. The BOJ maintained its gradual approach and did not increase its rates. However, the voting pattern shifted from 9-0 to 6-3, indicating some concern regarding the energy sector, which heavily relies on oil and gas imports. It is expected that the BOJ may raise rates before the year concludes. GOLD and OIL The recent shifts in the geopolitical landscape have slowed the upward momentum of gold prices. Countries that typically invest in assets are now prioritising cash reserves rather than adding gold to their portfolios. Markets in the Middle East and certain Asian nations are experiencing liquidity issues, leading to a kind of reluctance to aggressively invest. As a result, gold prices aren’t making significant gains and appear to be trapped within a certain range. One thing is evident: during this two-month conflict, gold has lost its appeal as a desirable asset. The changes in the global economic environment are also unfavourable for gold. The rising inflationary pressures brought on by sharp increases in global energy prices are negatively impacting metals. I foresee volatility and erratic price fluctuations in both directions. I can’t confidently assert that we have seen the lowest point for gold unless a settlement is achieved between the USA and Iran, along with an official announcement and agreement on a truce. Similarly, oil prices will continue to pose challenges for both G5 countries and emerging economies that depend heavily on oil imports. Unless maritime traffic through the Strait of Hormuz resumes its normal flow like it used to, oil prices will keep disrupting economic activity due to ongoing tanker traffic interruptions. This is why the recent easing of oil prices on trader’s screens is largely irrelevant. What matters more are the actual costs associated with transportation and delivery. In reality, transportation costs are straining many sectors, contributing to sharp inflation increases. There is clear evidence of shortages in essential everyday goods. Additionally, the shortage of liquefied natural gas (LNG) is severely impacting various industries across Europe and Asia. The global economy will remain unstable until a truce is reached between the US and Iran. WEEKLY OUTLOOK – MAY 4-8 #GOLD @ $ 4615- Gold is supported at around $ 4550 and $ 4505. To go up, it needs to break through $ 4680 to hit $ 4728. #EURO @ 1. 1721- Euro is currently trading within a narrower range, and this trend is expected to persist unless it rises above 1. 1840. However, a drop below 1. 1625 would suggest a move toward 1. 1570. #GBP @ 1. 3576- Pound Sterling faces resistance at 1. 3650. It is expected to remain below this level, it could potentially drop further to 1. 3450 or 1. 3390. #JPY @ 157. 06- The pressure on the $/JPY pair will remain as long as it stays below 158. 90. Before it reaches that point, it faces an initial resistance at 157. 85. There is a risk that a drop below 156. 05 could lead it down to 155. 40. Copyright Business Recorder, 2026

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