If we look at the weekend’s price action, the weekend’s future for the European stock index initially plunged over 125 points straight on the back of the news when Iran launched 300+ drones. Although the reaction from the Iranian side has been less intensive, many were thinking that Iran could have gone much further as they do have missiles that can travel in Israeli territory in under 4,000 seconds and have the ability to cause serious distraction.
The bitcoin’s price also experienced a plunge of nearly 8% as the price flirted with the early level of 61K and very much threatening the very strong support of 60K, which many believe is likely to hold the price from dropping further, but if violated, it could trigger a bigger sell-off.
But going back to the risk, the very factor that is keeping traders highly cautious and some thing that we can see today in the price action is the reaction from Israil. The US is trying to make the Israeli government understand that they should not react and use the opportunity at hand to foster their ties with their allies. However, the actions taken by the Israeli governments are difficult to calculate. Now, if we assume that the tensions do not escalate much further from here, then it means that the risk premium in the US and around the globe would go back to their normal and gold traders will go back to normal factors such as the US inflation readings and when they will ease off and what the Fed will do.
Gold: The precious metal is considered the ultimate hedge against inflation and also against escalation in geopolitical tensions. The two main reasons that we have seen such a strong trend in the price of gold in the past few days have been mainly due to the fact that traders know that inflation is unlikely to go back to its pre-covid level. And the second reason was the attacks carried out by the Israeli government on the Iranian embassy and what the aftermath of that could look like. In the last two weeks, the gold price’s rally did pick up more steam, and the price has closed in positive territory for the past four weeks. Any escalation in the current tensions, which is more likely due to a response from the Israeli government, could push the price of gold easily above the highest high shown in the chart below. However, if we see a limited reaction from Israil or a delay in the action, we could see some gas coming out of the current rally, which means that the price could violate the support shown in the chart below and the price could move towards its next support level, which is at 2192.
