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Analysis and Recommendation
The Israeli-Palestinian conflict’s escalation to a full-blown war carries significant implications for global financial markets. Financial markets are highly sensitive to geopolitical developments, particularly in regions with significant economic and strategic importance.
The Middle East, due to its role in global energy production and trade routes, has always been a focal point of concern for investors. Moreover, it has the potential to disrupt investor sentiment. Uncertainty and instability can lead to risk aversion, prompting investors to seek safer assets and reduce exposure to more volatile markets.
Our View: In such uncertain times, investors may explore gold as a potential hedge against international instability. Following the recent attack by Hamas, we observed a notable response in the gold market.
Spot gold prices surged by 0.93% to reach $1,850.11, marking its highest level in a week. Additionally, U.S. gold futures experienced a significant increase of 1.1%, reaching $1,863.70. Investor sentiment favoring gold as a safe haven asset was evident in the local stock market.
APX and PX gain short-term price increases
During the trading session, there was considerable interest in gold-related issues, with Apex Mining Co. Inc. (APX) shares gaining 9.65% and Philex Mining Corp. (PX) shares rising by 5.19%.
These movements suggest that investors are turning to gold as a potential refuge during times of heightened geopolitical uncertainty, seeking to protect their portfolios from the fallout of a widening conflict in the Middle East.
Gold price support and resistance
The technical risk-reward ratio for gold currently presents a favorable outlook. Gold successfully maintained its support at the critical 1,800 level, effectively establishing a double bottom pattern. This reaffirms the significance of 1,800 as a robust support zone, substantiated by the confluence of support from both a Fibonacci retracement and a moving average.
This support at 1,800 effectively caps the downside risks for Gold at the moment. Meanwhile, resistance is situated at the 1,890 level, indicating potential upside movement from its current trading position. Furthermore, it is worth noting that this bullish sentiment is reinforced by oscillators such as the Relative Strength Index (RSI) and the Stochastic Oscillator, both of which have concurrently generated buy signals, adding additional support to the short term bullish case for Gold.
Cautiously optimistic on gold
While gold prices have the potential to gain from geopolitical instability, their upward momentum is currently constrained by the Federal Reserve’s persistent hawkish stance on interest rates. The latest robust U.S. job data suggests the possibility of another rate hike by the Fed, and it’s conceivable that we might not see rate reductions until late 2024. Given the ongoing tension between a hawkish Fed and the prevailing geopolitical uncertainties, our short-term outlook for gold is cautiously optimistic.
In this complex environment, where escalating conflicts in the Middle East vie with persistent high inflation, traders should prepare for measured volatility in the gold market over the near term. The interplay between these factors makes it crucial for investors to carefully assess risk and potential opportunities in the gold market.
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