Tuesday was a bruising day for gold but let’s try to keep it in perspective. It was caught up in a ‘sell everything’ deleveraging market as all the weak hands regarding the Iran war got shaken out.
In all likelihood, this will go just as the US expects, with a 4-5 week bombing campaign that’s a massive setback to arms and operations in Iran. The might of the US military can’t be underestimated and their ability to target anything and deliver overwhelming force is unmatched in history. This is also a US-Israeli regime that’s not exactly tethered to the idea of avoiding collateral damage so the damage to Iran is going to massive.
On the flipside, Iran is launching waves of drone strikes and having some success. The idea of them targeting the Strait of Hormuz and Gulf oil infrastructure clearly rattled the market today. The US pledge to escort ships through the Strait of Hormuz took the sting out of the oil market but prices remain much higher than pre-attack levels — and even more if you include the $5-7 pre-war premium.
Ultimately, war and uncertainty are good for gold even if we’ve seen some deleraging today; and that’s what I think happened today. All exposure was trimmed back and there is plenty of leverged, new money in precious metals. That was thinned out like it was in many asset classes and gold fell to just below $5000 when betters re-appeared.
Since then, the price action has improved and gold is up to $5121, including $40 in the past half-hour. Asia was on the bid for most of yesterday before the selling started in Europe. That suggests a different level of risk tolerance or stronger hands. I wouldn’t expect a runaway bounce until there is a better risk mood but my eyes are on $5150 and the possibility of a bigger bounce from there.
If you look since the US morning, there are now three higher lows on that chart and now we just need a higher high.
This article was written by Adam Button at investinglive.com.
