Gold tends to be an investor favorite when geopolitical tensions rise and risk appetites dip, but OANDA senior currency strategist Alfonso Esparza points out that Gold’s failure to hold on to 3-1/2-week highs reached on Thursday made traders cautious over the price outlook.

Gold eased on Friday as traders booked profits after a seven-day rally and as the dollar rebounded on strong US data, but the metal still looked set to post its second straight weekly gain on expectations US interest rates will stay low for longer.

Tensions in the Middle East after Saudi Arabia and its allies launched air strikes in Yemen provided some support to gold, typically seen as a safe haven asset.

Spot gold eased 0.3% to $1,199.95 an ounce by 0755 GMT. The metal jumped on Thursday to $1,219.40—its highest since March 2—in a knee-jerk reaction to the attacks in Yemen. It later pared gains to close near $1,200.

“Gold is weakening because of profit-taking and a slightly stronger dollar,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. “I don’t think traders would want to commit too much unless things worsen in Yemen,” said Leung. Prices could consolidate around $1,200 in the near term, he said.

Gold tends to be an investor favorite when geopolitical tensions rise and risk appetites dip.
However, its failure to hold on to 3-1/2-week highs reached on Thursday made traders cautious over the price outlook.

“Although the metal breached the 100-day moving average (near $1,208) during the session, it failed to close above the indicator, which may signal that this latest run is nearing an end,” said MKS Group trader James Gardiner.

Oil prices also gave up some overnight gains as markets believed the threat of a disruption to world crude supplies from the Saudi Arabia-led air strikes in Yemen was low.

By Alfonso Esparza,Senior Currency Strategist, OANDA