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Gold is overvalued but don’t expect a price drop as Middle East tensions rise - FXTM

Kitco News

(Kitco News) - The gold market, pushing to within striking distance of $1,600, may look overbought, but will remain at current levels as long as geopolitical uncertainty dominates investor sentiment, according to one market strategist.

Escalating tensions between the U.S. and Iran have pushed gold prices to their highest level since April 2013 and many analysts are now keeping their eye on the $1,600 an ounce level. February gold futures last traded at $1,565.5 an ounce, up 84% on the day.

The yellow metal has rallied more than 3.5% since the start of the new year; prices were propelled higher after the U.S. announced that it killed Qasem Soleimani, commander of Iran's Islamic Revolutionary Guards Corps (IRGC) Quds Force in a military airstrike.

In a research note published Monday, Hussein Sayed, chief market strategist at FXTM, said that gold will continue to shine as the conflict in the Middle East remains. Sayed’s comments come as technical indicators like the Relative Strength Index are at their highest level since September, well in overbought territory.

“In times of political and market uncertainty, there is no better alternative to buying gold and despite looking overbought on the charts, the rally will continue as long as uncertainty stays high,” Sayed said.

In initial retaliation to the U.S. airstrikes, the Iraq government voted to expel U.S. troops from their country, Iran announced that it would no longer adhere to the 2015 global nuclear deal, and three Americans were killed in Kenya after a jihadist group attacked a military base.

Unlike previous short-lived Middle East issues of 2019, Sayed said that that the latest conflict is not expected to deescalate anytime soon. Sayed added that the latest development could put pressure on the U.S. and global economic growth.

“2020 was supposed to be the year where the global economy bounces back to life after the US and China trade tensions thawed and investors got more clarity around Brexit. Events over the last week have undoubtedly put this outlook at risk,” he said. “Investors will remain on the defensive… as everyone now awaits a possible retaliatory response by Iran. This may not be an immediate one, but rather a protracted event which investors need to carefully calculate when determining their portfolio ’s risk.”

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