The gold market is sharply higher on Wednesday as demand for safety takes center stage. The war in Gaza has taken a nasty turn for the worse. It was reported that an Israeli bomb hit a hospital in Gaza, killing 500 people. Hamas has blamed an Israeli air strike for the tragedy while Israeli has suggested that an errant Hamas missile is to blame. Whatever the case may be, the war appears to be getting nastier at this point and more violence may be seen before any type of conclusion is seen.
Of particular concern to global financial markets is the potential for additional actors to get involved in the conflict. The United States has already placed significant firepower within the region, including its newest supercarrier battle group. If the U.S. were to get involved, other nations such as Iran may also see fit to get into the mix, and World War III could be underway. The conflict has fortunately not reached that point, at least not yet, but the longer the battle rages on the more likely U.S. involvement may become.
The war in Israel is not the only war going on. The war in Ukraine continues to rage on as well, and there have thus far been no signs of a slowdown in that conflict. As long as battles are taking place anywhere on the globe, safe-haven demand for gold could rise and rise substantially. The wars taking place are already having a large impact on the price of gold, which has risen significantly in recent days and is sharply higher today. The gains seen in recent sessions could be magnified if the situations escalate further and could provide the bulls with the needed catalyst to produce a close and sustainable rally over the $2,000 level.
War is not the only issue affecting gold. The persistent inflation and higher interest rates are also important factor for the metals markets. Although the Fed may not continue to take rates even higher, it has suggested that rates would remain higher for longer. The Fed is unlikely, at this point, to signal a rate reversal until signs emerge of an impending recession. Those signs have remained elusive thus far, however, and the Fed may now find itself in a good spot to maintain higher rate levels to try to cool inflation. Price pressures have come down, without a doubt, but they remain stubbornly elevated and far from the Fed’s desired target of 2% annualized.
The gold bears are still in control on the daily chart, but not by much. The four-month-old downtrend on the daily chart is about to be negated, and any further upside will reverse that trend to up rather than down. The bulls are eyeing a close above the $2,000 as an indication of further strength. The bears are looking to produce a close below the $1,800 level, which seems a long way off at this point. The bulls are now within a day or two of striking and testing the $2,000 level, and such a test could determine the market’s direction for the months ahead.