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Middle East Impact

Gold prices softened over European and US trading on Monday following a sharp rally on Friday as safe-haven flows surged higher on Israel/Palestine news flow. Gold futures recorded their largest single-day gain since March on Friday as risk assets tumbled against the backdrop in the Middle East. With the situation still unfolding and the outlook highly volatile, gold prices look likely to remain underpinned in the coming weeks meaning we should see the rally continue. For now, the focus is on whether we see an escalation of the conflict along Israel’s Northern border with Lebanon as well as whether Iran pursues any direct involvement. 

Powell on Watch

Alongside monitoring news flow in the Middle East this week, traders will also be watching Fed chairman Powell who speaks on Thursday. With the market currently pricing in around a 90% chance of rates staying on hold next month (and 65% chance of a hold in December), traders will be keen to see if Powell supports this view or if there is nay indication of a shift. If Powell is seen keeping expectations of a rate hike muted near-term, this should help gold prices rally further into next week.

Technical Views

The rally in gold prices has seen the market breaking out above the bear channel from YTD highs and above both the 1871.04 and 1905.46 levels. While above here, the focus is on a continuation higher and a test of the 1973.51 level next, in line with bullish momentum studies readings. 

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