With the US-Iran conflict persisting for 200 days, market participants now assign a 92% probability to a rate increase at the conclusion of the Federal Reserve’s meeting on Wednesday, according to CME FedWatch. This represents a notable rise from 59% one week prior.
Against this backdrop, benchmark have surged above 5% and touched their highest level in nearly two decades. At the same time, the U.S. dollar has firmed. Higher borrowing costs tend to weigh on gold because bullion pays no interest, while a stronger dollar can dent the metal’s attractiveness to overseas buyers.
Meanwhile, have moved higher after Saudi Arabia shut its east-west pipeline following attacks by Iran-backed Houthi militants in Yemen. The disruption puts millions of barrels a day at risk. The pipeline has been a key route for Saudi oil flows following the effective closure of the Strait of Hormuz earlier this year.
U.S. President Donald Trump predicted last week that the conflict would end only after the U.S. midterm elections on November 3. This is a notable shift in tone from an administration that initially suggested the war would last weeks, not months.
Citing two regional officials, the Associated Press said the 1,200-kilometer-long pipeline will be offline for three to five weeks, as the damage, including at a crucial pumping station, is repaired. The AP added that the pipeline may be in partial use during the repairs, but it was not certain how much oil would be flowing.
However, markets are entering a week where oil, central banks and yields could all pull in the same direction: higher inflation and tighter financial conditions. The real question is whether policymakers validate or challenge those expectations, with the answer likely to determine the next major move across currencies, equities and gold.
Qatar on Tuesday warned against closing the Bab el-Mandeb Strait, after a months-long blockade of the Strait of Hormuz and recent Houthi gains on the Red Sea coast.
“The world is suffering enough with the closure of the Strait of Hormuz, so we cannot also afford to add the Bab al-Mandeb into that equation,” Qatar foreign ministry official Ibrahim Al Hashmi told reporters.
He said a closure of the southern entrance to the Red Sea would be “catastrophic for the entire world. And we are already seeing the consequences … so Qatar is pushing for diplomacy, dialogue.”
Technical Levels to Watch
On a monthly chart, after opening this month at $4,498.70, tested the month’s high at $4,558.50, and month’s low at $4,293, are trading at $4,317.65, just below the key support at the 9 EMA ($4,330), where a sustainable move could push the futures to test the next key support on monthly chart at the 20 EMA ($3,986), where closing below this could raise scary dents of the energy-driven inflation on the global economy.
On a weekly chart, after opening the week at $4,375.00, tested the week’s high at $4,396.80 and week’s low at $4,293.00, gold futures are trading at $4,320,70, after facing significant resistance at the 9 EMA ($4,387.57) just trying to hold the key support at the 50 EMA ($4,285), where a breakdown could push the futures to test the next key supports at $4,250.50 and $4,180.45, after facing significant resistance at the 20 EMA (4,399), which has come even below the 9 EMA ($4,389), raising concerns on persisting weakness at the current levels.
On a daily chart, after opening the day at $4,329.09, tested the day’s high at $4,357.84, and day’s low at $4,301.67, gold futures are trading at $4,312.32, below the 100 EMA ($4,361.34), and have pierced the key support at the 50 EMA ($4,316.87), forming a Bearish Hammer, due to the formation of a “Bearish Crossover”, as all the Exponential Moving Averages (9, 20, 50, 100) have pierced the key support at the 200 EMA ($4,561.24).
***
Disclaimer: Readers are advised to take any position in gold and oil at their own risk, as this analysis is based solely on observations.
