The gold market had a slow day Monday as the new trading week gets underway. In after hours action, spot gold price is down nearly $5 per ounce. The yellow metal sits well within striking distance of the critical $2,000 level and could test this area in the days ahead. Following the recent run higher in gold, it should come as no surprise that the market may need to spend some time moving sideways and consolidating before higher prices may become sustainable. Any sharp pullback in gold may be aggressively bought, however, and the market could begin a rapid run higher approaching previous all-time highs under the right circumstances.
Israeli-Hamas Conflict Adds Uncertainty to Gold Market
Although the Fed, inflation and interest rates all remain keys for the gold market, currently the biggest potential catalyst for gold is the war between Israel and Hamas. At the two week mark, Israel appears ready to launch a ground invasion into Gaza. Such a move could take the war to another level entirely, as Gaza is filled with innocent citizens and non-combatants. Israel appears intent on wiping out Hamas this time, however, and a ground invasion may send the desired message to the enemy. A Gaza invasion may lead to many deaths, however, and is not to be taken lightly.
The Israeli/Hamas war has lit a fuse that could result in an explosion. Anti-American rhetoric and action is on the rise, and the U.S. has issued travel warnings to its citizens. American embassies could be attacked in the days ahead, and the risk of terrorism may be higher right now. The United States currently has two carrier battle groups in the Mediterranean, including the largest ship it has, the USS Gerald Ford. These groups can launch an enormous amount of firepower on targets close and far away from them. Should the U.S. begin to launch airstrikes, the war could take a different direction and do so in a hurry. Any involvement by the U.S. or Iran could signal the beginning stages of the Third World War. This risk may keep buyers looking at gold as many unknowns now exist that could weigh on risk assets.
Gold Bulls Eye $2,000 Breakthrough Amidst Geopolitical Uncertainties and the Prospect of Record Highs
The gold bulls have recently retaken control of the market on the daily chart. The four-month plus old downtrend has been negated, and an uptrend is now in place. Although a bottom appears to have been reached in the gold market, the bulls still need to test and take out the important $2,000 level. This area may provide some solid upside resistance, and the bulls will need to produce a convincing close above this level to attract fresh buying interest. A close above $2,000 could set the stage for a sharp rally, and that rally could take the yellow metal back to its previous all-time highs and do so in a hurry. If the Israeli/Hamas war does escalate, the price of gold could very well break out and reach fresh all-time highs. There would be nothing standing in the way of the bulls at that point, and the metal could rise substantially in a short period of time. For the time being, the bulls may need to see the market catch its breath, however, before embarking on a sustainable move higher.