Gold prices rebounded after falling by more than 4% in the previous trading session as traders weighed the impact of a stronger dollar against the demand for safe-haven assets amid escalating tensions in the Middle East.
Gold prices climbed above $5,100 per ounce as bargain hunters entered the market after a four-day rally ended on Tuesday. The dollar index rose 1.4% this week, and bond yields also increased. Due to the soaring energy prices intensifying inflation risks, traders reduced their bets on monetary easing policies.
On Tuesday, a broad sell-off in the stock market forced some investors to liquidate their positions to meet margin calls on other parts of their portfolios.
Peter Kinsella, global head of foreign exchange strategy at UBP SA, said the gold market is experiencing a standard “portfolio risk-aversion behavior”. He noted: “This is exactly what we have seen in previous conflicts, but I have noticed that the long positions in gold in the futures market are not particularly high – this should limit any decline.”
As the aftershocks of the US-Israeli war against Iran ripple across the region, market sentiment is tense. According to Israel’s public broadcaster Kan News, Israel launched a new round of air strikes against Tehran on Tuesday and hit a building in the Iranian city of Qom where a meeting was being held to elect a successor to Supreme Leader Ayatollah Ali Khamenei. Iran’s semi-official Mehr News Agency said the building was hit but was not in use at the time.
Kinsella said, “I think the gold price will definitely recover.” He also added that the long-term drivers remain unchanged. “If anything has changed, it’s that the outcome of the war is still uncertain, which has made the persistent geopolitical risks more prominent than ever.”
However, the inflation risk brought about by the soaring energy prices may cap the rise in gold prices, compelling the Federal Reserve to keep interest rates unchanged or even raise them. Traders have factored in the probability of more than one rate cut (each by 25 basis points) this year into the price, after they had fully priced in the expectation of two rate cuts last Friday. Higher borrowing costs pose a negative impact on non-interest-bearing precious metals.
Technical analysis:
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Gold: Geopolitical tensions continue to simmer, but the price of gold was dragged down to around 5000 overnight by the sell-off across all assets (except the US dollar and crude oil). Subsequently, buying emerged, helping the price rebound to around 5150. For today, we suggest observing the opportunity for a pullback to around 5130 for confirmation and re-entering long positions. For detailed levels, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq index: After sweeping through the liquidity around 24,300 overnight, it rebounded. The key demand area for the day is around 24,400. A pullback to confirm can be an opportunity to try a long-term rebound trade. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, our plugin indicated that a buy stop operation should be carried out once the blue area was broken through. In fact, the profit and loss ratio could reach over 9 times. Currently, the price is consolidating in the 75-76 range. We are looking forward to seeing a new upward breakout pattern. After the price recovers above 76, we will consider a new long signal. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
18:00 Eurozone unemployment rate for January
21:15 US ADP Employment Change for February (thousands)
23:00 US ISM Non-Manufacturing PMI for February
