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Another major geopolitical issue can now be added to the list of bullish catalysts that could potentially send gold sharply higher. Over the weekend, the largest Saudi production facility was attacked, igniting fears of a major conflict in the Middle East. The attack reportedly removed 5 million barrels per day from the market which is over half of total Saudi production. The cut in production is the largest ever and sent oil prices soaring. Brent crude leapt by 20 percent on the news while WTI crude also saw a significant double-digit jump.

The U.S. believes that Iran was behind the attack, although the country has denied any involvement. President Trump was quick to respond, suggesting that the U.S. could potentially take military action once the perpetrator was known. He also said that he would authorize the release of oil from the Strategic Petroleum Reserve if necessary to keep the market well-supplied.

No official timeline has been given yet for restoration of production to previous levels. Some reports have suggested that about one-third of production could be restored as early as Monday.

The attack on Saudi oil facilities represents an attack on the global economy. If the damage cannot be repaired quickly, there are concerns that oil prices could spike to $75 or even $100 per barrel. A sharply higher oil price could potentially be the straw that broke the camel’s back as the global economy is already fighting a significant slowdown. Not only could higher oil prices put the economy into recession, but they could also cause central banks to rethink their currency policy stances if higher costs are paid by the public as inflation accelerates.

As markets continue to monitor the situation in Saudi Arabia, any further attacks or military action taken by the U.S. or its allies could stoke significant risk aversion. If crude prices continue to rise, that too may cause market unrest and increasing volatility.

The major economic news of the week will be the FOMC meeting. The Fed is widely expected to cut the Fed Funds rate by another 25-basis points at the conclusion of the meeting. As another rate cut has already been “baked into the cake,” markets will likely focus their attention on the central bank’s commentary, looking for any clues about its plans going forward. The notion of additional cuts has been a major influence on the recent rally in gold, and any hawkish commentary from the Fed has the potential to fuel some profit taking and even a significant pullback.

The three-month uptrend on the daily chart is still intact. The bulls are having some trouble defending the $1500 region thus far, however, and a test of technical support around the $1485 level could be seen soon if the market fails to put together a sustainable rally.

Given the current economic and geopolitical backdrop, prices may not have to fall far before finding more willing buyers. The combination of a slowing global economy, central bank easing and numerous geopolitical risks may keep any dips in the market shallow and viewed as an opportunity to buy on sale.