Threat of escalation in the Middle East should support gold – London Business News | Londonlovesbusiness.com

Gold remains stuck between $2480 and $2450, with the 50-day moving average at $2473 also offering near-term downside support.

However a big picture overview shows a market in balance and looking for a spark to promote some clarity and steer on for direction.

With gold traders having rebuilt longs after Monday’s broad market liquidation, the time for gold to continue to move in alignment with the NAS100 and other risk assets may be coming to an end.

We may start to see gold return as a portfolio hedge against economic fragility and impending Fed rate cuts.

The threat of escalation in the Middle East should also keep gold well supported, although it seems that the prospect of the US and its allies becoming involved seems remote – where should that view shift then gold could really see a far more impulsive move higher.

The near-term catalysts that stand out this week would likely be the US CPI print, and US retail sales report – should we see a US core CPI print above 0.35% m/m and cries of ‘stagflation’ may be heard more liberally, and this could initially weigh on gold, as the USD spikes higher. Conversely, a reading below 0.2% m/m and there will be a re-focus on how far behind the curve the Fed really are, with the market leaning closer to a 50bp cut in the September FOMC meeting.

Growth and consumption trends matter, so any weakness in the US retail sales report would likely result in US 2yr Treasury yields resuming a slide back to 3.80%, with the yield curve bull steepening and traders seeing gold as a good place to allocate capital towards.

As we saw last Monday, that dynamic really is conditional on volatility, and should markets fire up again and see a further VaR shock and forced liquidations, then gold may well get caught up in that – although while it is a possibility, it seems like a lower risk this time around.