February gold traded to new contract highs overnight, and the nearby contract traded to its highest level since early-April 2013, as the rhetoric and events in the wake of the US drone hit last week are not abating.

Like the petroleum markets, the gold market is in a full-on risk-dominated posture with follow-through gains being seen this week. However, it is unlikely Iran will be able to retaliate quickly, as they were caught unaware and will be facing intense monitoring by US systems.

Instead, our projection is for an isolated terrorist attack against soft targets, as any movement by Iranian military assets could be instantaneously liquidated. After all, the US planned the attacks and has probably implemented increased surveillance and defense capacities.

The gold market might also expect to see buying interest from last week's US ISM reading, which reached the lowest level since June 2009.

Another focal point will be the action in the US dollar, as it did show liftoff with last week's spike in global anxiety. However, if US scheduled data starts out soft this week and the headline flow from the Middle East moderates, the dollar could see last week's gains removed.

Certainly, the gold market is short-term technically overbought given the compact crescendo of buying on Friday and overnight, with the largest volume of trade since November 26. Given the $50 rally since the last Commitments of Traders report, we suspect that the spec and fund net long creeping toward its all-time high.

Even the silver market is seeing its spec and fund net long position expand, and if we adjust for the 30-cent gain since the last report was released, it could be at its highest level since mid-2017. Since we doubt a quick retaliation from Iran, some back and fill action is likely if scheduled data does not come in soft and global equity markets avoid further large declines.

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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.