It's been a volatile couple days in the gold market amid heightened tensions between the U.S. and Iran. The yellow metal reached a near seven-year high at 1611.41 in overnight trading after Iran launched retaliatory missile strikes at Iraqi military bases where U.S. troops are stationed.
However, gold backed off those highs when the U.S. didn't counterstrike immediately. Further retracement was seen when the President tweeted that "All is well" and that he would make a statement in the morning. Subsequently, reports trickled out that both the Iraqi military and U.S. forces were forewarned of the Iranian attack.
Spot Gold Daily Chart
That made it seem like the Iranian regime was just looking to save face by lobbing some missiles in the general direction of some U.S. forces. As it turned out, no U.S. personnel were killed or injured, allowing President Trump to walk back his previous threat to retaliate "quickly and fully".
Instead of a military response and further escalation of the situation, the Trump administration opted to pile on additional economic sanctions. Mr. Trump went on to say that "Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world."
With the risk of an all-out war between the U.S. and Iran seemingly mitigated, gold has returned to the area where it closed on January 3rd (1551.61) when Iranian General Qasem Soleimani was killed at the Bagdhad airport by a U.S. drone strike.
This seems to make sense. However, tensions are still high. It remains to be seen if the Quds Force and its proxies – under their new leadership – will continue to engage in disruptive and often lethal actions against U.S. interests in the region.
Price action today did do some fairly significant technical damage to the chart. Note the outside day, bearish engulfing pattern, and that a key reversal will be confirmed on a close below Tuesday's low at 1555.33.
Nonetheless, I'm not inclined to be terribly bearish at this point. As previously stated, Middle East tensions, while relieved somewhat, are not going away any time soon. In addition, the fundamental factors beyond Iran, that drove gold higher throughout most of 2019 are still very much in place.
Gold could certainly retrace deeper into the January 3rd range (1553.55/1528.79) with the 9-day SMA at 1539.55 offering additional support. Today's sharp drop did do a nice job of relieving the excessive overbought condition that was highlighted in a Bloomberg article from earlier in the week: Gold has been This Overbought Only Thee times in Two Decades
I still like the next upside Fibonacci objective at 1625.93 with today's overseas high at 1611.41 providing a solid intervening barrier. A rebound above the midpoint of today's range at 1581.82 would offer encouragement to the bullish scenario.
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