Investing.com — has glittered its way to record highs on a diet of geopolitical tensions, a weaker dollar, sluggish real yields, but with rate cut expectations suffering a major blow, the yellow metal’s run could soon be on borrowed time. 

“We would not add gold exposure at current prices, and view it as vulnerable on a 6-12 month horizon as forward markets will further unwind Fed rate cut expectations and bond yields have more upside,” Strategists at MRB Partners said in a Friday note.

Gold prices have been riding a perfect macroeconomic storm higher that started in October last year and picked up pace in mid-February against a backdrop of broadly flat real U.S. interest rates and a stable U.S. dollar, the strategists added.

But in recent weeks the dollar and the level of bond yields, particularly real yields, the two dominant cyclical drivers of gold, have been on the up and up, paving the way to a much bumpier path higher for the yellow metal. 

The jump in yields followed a slew of hawkish remarks from Federal Reserve officials including from chairman Jerome Powell, who earlier this week signaled that the recent upside surprises to inflation have knocked the Fed’s confidence to begin cutting rates. 

Traders now see the Fed’s first rate cut in September rather than June, with just two rate cuts priced in for this year, compared with the six or seven estimated previously, and fewer than the three cuts for 2024 that the Fed had projected at its March meeting.      

Gold has, however, appreciated despite this backdrop of higher yields and a stronger dollar, but is 

Investing.com– Oil prices fell Friday, handing back the earlier sharp gains after Israel reported launched strikes against Iran, elevating the already fraught tensions in the Middle East.

At 08:50 ET (12:50 GMT), fell 0.5% to $86.65 a barrel, while dropped 0.3% to $82.47 a barrel.

Middle East tensions back in focus after Iran explosions

Both benchmarks had soared 3% earlier Friday after reports of missile strikes in Iran, with Iran’s Fars News Agency saying explosions were heard in Isfahan in central Iran, in parts of southern Syria and in parts of Iraq. ABC news reported that U.S. officials said Israel had retaliated against Iran.

Both contracts reversed a bulk of their losses for the week, but were still set to end the week mildly negative. 

Israel’s likely retaliation, around a week after Iran launched a missile and drone strike against Israel last week, which was in turn retaliation for an alleged Israeli strike on an embassy in Damascus, marks an escalation in the Middle East conflict.

That said, the quick surrender of early gains suggests the market doesn’t believe this to be a severe escalation, with Tehran stating that nuclear facilities were undamaged.

Iran recently said it could reconsider developing a nuclear weapon if Israel attacked the country’s nuclear sites, which it said have so far been used only for peaceful, power-generating purposes. 

UN reports recently showed Iran was enriching uranium up to 60%, which was more than levels required for commercial power generation. But it was also below the 90% enrichment level required for an atomic bomb. 

Goldman lifts oil forecasts 

“After rallying sharply to just over $90/bbl on rising geopolitical risks, Brent prices have declined to $87/bbl,” said analysts at Goldman Sachs, in a note.

“We still see a $90/bbl ceiling on Brent in our base case of non geopolitical supply hits,” the influential investment bank said. “The reasons are that high spare capacity and higher prices will likely lead OPEC+ to raise production in Q3, inventories remain flat over the past year, and prices are already triggering stabilizing responses, including rises in OPEC exports and lower crude demand from the US SPR and refineries.”

That said, the bank lifts its floor for Brent to $75 a barrel, from $70, saying it assumes only a gradual normalization in the risk premium, and think that OPEC will manage to keep spot prices above long-dated prices through a smaller unwind of production cuts than we assumed before.

Additionally, “we still see value in long oil positions given significant portfolio hedging benefits against geopolitical shocks, and an attractive 10% annualized roll yield.”

It also lifts its Brent forecast to $86 a barrel for the second half of 2024, versus $85 prior, and to $82 a barrel for 2025, from $80.

Oil still set for weekly losses 

Oil prices are set for hefty weekly falls, on the back of a stronger , following strong U.S. economic data and warnings from a slew of Fed officials that interest rates will remain higher for longer.

A stronger dollar pressures crude demand by adding a currency-related premium for international buyers. 

The prospect of higher-for-longer rates factors into fears that global economic growth will be stymied by tight policy, which also bodes poorly for oil demand. 

Traders were seen largely pricing out expectations for a June rate cut by the Fed. 

(Ambar Warrick contributed to this article.)

By Noah Browning and Deep Kaushik Vakil

(Reuters) – Oil slipped on Friday following an earlier price spike of more than $3 after Iran played down reported Israeli attacks on its soil, in a sign that an escalation of hostilities in the Middle East might be avoided.

futures were down 48 cents, or 0.6%, at $86.63 a barrel by 1155 GMT. The most active U.S. West Texas Intermediate contract was down 38 cents, or 0.5%, to $82.35.

Explosions were heard in the Iranian city of Isfahan on Friday in what sources described as an Israeli attack, but Tehran played down the incident and indicated it had no plans for retaliation in a response that could ease concerns about escalation into a region-wide war.

Iran struck Israel with a barrage of drones and ballistic missiles on Saturday in retaliation for a presumed Israeli air strike on April 1 that destroyed a building in Iran’s embassy compound in Damascus and killed several top Iranian officers.

“Whilst the initial spike in oil may have highlighted the initial fear of further escalation, we have seen both equities and crude reverse some of those preliminary moves,” said Joshua Mahony, chief market analyst at Scope Markets.

“Events of the past week appear to be more about showing their willingness to act rather than actually seeking to incite a war …For markets this is a best case scenario”.

Investors had been closely monitoring Israel’s reaction to the April 13 Iranian drone attacks and have been gradually unwinding oil’s risk premium this week.

Prices have fallen more than 4% since Monday and are set for their biggest weekly loss since early February.

“The oil market is nonetheless concerned as there is too much oil supply at stake,” said Bjarne Schieldrop, commodities analyst at SEB Research.

Meanwhile, U.S. lawmakers have tucked sanctions on Iran’s oil exports into a pending Ukraine aid package which targets ships, ports or refineries that process Iranian crude and transactions from Chinese financial institutions involving purchases of petroleum from Iran.

Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.

The U.S. also announced sanctions this week on Iran targeting its unmanned aerial vehicle production.