Geopolitical and economic uncertainty to keep bullion volatile

Comex gold futures kicked off June with a sharp rally, breaching the $3,400 per ounce mark, its highest level in over a month, as escalating geopolitical tensions and renewed trade disputes reignited safe-haven demand. The ongoing Russia-Ukraine conflict intensified following reports of a Ukrainian aerial strike on Russian air bases, prompting risk aversion. Simultaneously, renewed US-China trade tensions, stoked by President Donald Trump's decision to double tariffs on steel and aluminum imports to 50% (effective June 4), further unsettled markets. Equities turned lower as Trump’s comments labeling President Xi as “extremely hard to make a deal with” rattled investor sentiment. On the macroeconomic front, weaker-than-expected US ISM Manufacturing PMI data indicated a slowdown in industrial activity, reinforcing the flight to safety.

Last month, gold is rebounding strongly after a sharp 11% correction, when prices fell from a record $3,510/oz to lows of $3,123/oz weighing down by improved global risk sentiment and reduced safe-haven demand followed a significant breakthrough in U.S.-China trade negotiations. Both nations agreed to temporarily lower tariffs on each other’s goods for 90 days, with the U.S. reducing the combined tariff rate on Chinese imports to 30% from 145%, while China lowered its levies on U.S. imports to 10% from 125%. Moreover, global gold exchange-traded funds (ETFs) saw net outflows of $1.8 billion in May, snapping a five-month inflow streak as per data form World Gold Council.

However, mounting concerns over the US fiscal trajectory, including Moody’s downgrade of the US credit rating to Aa1 due to rising deficits, have reignited demand as gold recover over 9% from May lows. The advancement of Trump’s tax cuts and a new spending bill that could further inflate the national debt has deepened worries. These developments, along with growing speculation of potential Fed easing, have pressured the dollar and underpinned gold’s resurgence. Central banks continue to play a pivotal role in the gold market, with purchases projected to reach 1,000 metric tonnes in 2025.

Comex gold futures achieved their highest settlement level on record, settling above $3,450 per ounce driven by a sharp escalation in geopolitical tensions after Israel launched a preemptive strike on Iran’s nuclear facilities, triggering several days of drone and missile exchanges between the two nations. Signs of a cooling labor market and benign inflation strengthened market expectations for a Fed rate cut as early as September, with 50 basis points of easing now priced in for 2025. In its latest meeting, the Fed held rates at 4.25%-4.50% but trimmed its 2025 GDP growth forecast to 1.4% while raising core PCE inflation to 3.1%. Policymakers maintained a cautious tone, reaffirming their readiness to adjust policy in response to external shocks including tariffs and geopolitical risks.

Currently, Comex gold is consolidating below the all-time highs and outlook for gold remains highly sensitive to geopolitical developments, particularly the evolving situation between Israel and Iran. Any further escalation or de-escalation in the Middle East will likely trigger significant price movements.

Concurrently, US monetary policy expectations will continue to play a crucial role. While the Fed is still considering rate cuts, any shift in this stance or stronger-than-expected economic data could temper gold's appeal. Market focus will remain on key US macroeconomic indicators, including inflation data, consumer sentiment, and Fed Chair Powell's testimony along with geopolitical tensions in middle east and Russia – Ukraine war. Long-term, strong central bank demand for gold suggests underlying support for prices.

Technically, Comex gold holds key support at $3,300, with a broader demand zone between $3,150–$3,175. A breach below $3,150 may lead prices toward $3,050. On the upside, sustained momentum above $3,450 could push prices beyond $3,500, targeting $3,700. On MCX, ₹96,300 is key support, while a breakout above ₹99,350 could trigger a rally towards ₹1,03,300.

Comex silver surged to a fresh 13-year high above $37 per ounce this week, rallying over 9.1% in June till date after a subdued May marked by range bound trade. Silver prices jumped higher on strong technical momentum, persistent industrial demand for its critical role in solar panels, electronics, and broader electrification and ongoing supply constraints as projected by the Silver Institute. Additionally, institutional interest is rising, evidenced by a single-day increase of 2.2 million ounces in silver ETF holdings last week.

Silver is expected to gain further amid growing safe-haven demand and mounting expectations of a Fed rate cut in September.

Views are personal. Author is AVP - Commodity Research, Kotak Securities