Geopolitical Tension Sends Gold Near 5-Month High

On Tuesday, Gold traded higher as geopolitical tensions continue to take shape across the globe. One member of the Fed has expressed that it would be prudent to raise rates at least three times this year. Weak U.K. industrial output data caused traders to bid up gold. Gold closed higher by 0.1% to $1,275.21.

Geopolitical Problems

Gold had risen higher as traders have kept an eye on geopolitical tension around the globe. Things have started to get worse between the U.S. and several other nations. More specifically, the U.S. had a run in with Russia and Syria. The U.S. launched 50 tomahawk missiles at a Syrian airbase.

This was in response to a chemical attack that Assad had released on a rebel camp. The U.S. had stated that Russia has attempted to shield Assad with respect to the Chemical attack. In the other part of the world, the French election is also hosting tension in the European region.

The two frontrunners for the French election are Emmanuel Macron, and far-right wing leader Marine Le Pen. What do all these events have to do with trading gold? That is because all these events can cause growth problems in these countries.

Tension between nations will mean less trade, new regulations, and a drop in demand. Gold would trade higher in this instance, because it is considered a safe haven asset. Whenever things go bad in the world, traders tend to flock to gold.

Fed Talk

It is never a good thing for gold when Fed officials start to talk about interest rates. It seems that despite gold hitting near its 5-month high, it was not able to do so because of a pullback. Such a pullback occurred because of a comment made by a Fed official.

San Francisco Federal Reserve Bank President, John Williams, stated on Tuesday that the U.S. Central Bank should aim for three to four rate hikes this year. The problem with that statement is that interest rates being raised are bullish for the dollar. Gold tends to have an inverse relationship with interest rates. When interest rates are raised, gold tends to fall.

That means dollar-denominated gold will trade lower. That happens because of two reasons. The first reason is that a stronger dollar can buy more gold. The second reason is because the dollar becomes a wanted asset. Traders flock to the dollar, and move away from gold.

Industrial Output

Another issue that kept gold from trading higher would have been the weaker than expected U.K. industrial output data. The U.K. revealed that industrial output fell by 0.7% in February. This was totally opposite to what analysts were expecting. Analysts’ expected that industrial output would increase by 0.2%.

The added problem is that industrial output had also fallen the prior month. The prior month it fell by 0.3%. Gold tends to shine on weak data. That is because weaker than expected data creates a lot of economic uncertainty. In that instance, traders move to gold as part of their asset allocation.

What Binary Options Traders Should Watch For

There are a few things traders should watch.

The first of which is to see if the geopolitical problems get worse. If they do, then gold should trade higher. On the flip side, if the tension starts to die down, that will likely cause gold to trade lower.

The second item would be the Fed’s next move. The Fed has plans to raise rates at least three times this year. The problem is that it is just a projection. It is highly possible that the Fed won’t be able to hike rates that many times this year. That means that gold will still have a chance to trade higher.

The final item that traders should keep an eye on would be additional data from the European Union. Being that gold is stronger when economies are weak provides for a great advantage. If other economic data in the region comes in lower than expected, that would be highly bullish for gold.