Market Overview
Gold's appeal as a safe-haven asset diminished on Thursday, as it experienced a decline alongside equities, despite rising geopolitical tensions in the Middle East. In contrast, crude oil prices saw significant volatility, with Brent and WTI crude oil surging due to fears that ongoing conflicts could disrupt global energy supply routes.
Middle East Tensions
The situation in the Middle East escalated as Israel intensified its military operations in Lebanon, responding to rocket and drone attacks from Hezbollah and Iranian-backed forces. This escalation raised concerns about potential disruptions to energy supply routes, particularly through the critical Strait of Hormuz.
Iran's Supreme Leader, Mojtaba Khamenei, indicated that the country would continue its military response, warning of possible disruptions to oil shipping. Additionally, drone strikes targeted energy infrastructure near Oman’s Salalah port, further heightening concerns about regional stability.
Russia has called for the US and Israel to cease military actions and pursue negotiations, citing increasing humanitarian risks. The conflict has also led to travel disruptions, with numerous flight cancellations reported across the Gulf region.
Market Reactions
As tensions rose, Wall Street indices fell for a third consecutive day, with technology stocks leading the decline. The Nasdaq 100 futures dropped by 1.7%, while the Dow Jones Industrial futures fell by 1.5%. The S&P 500 remained relatively flat, trading just above 6700.
The US dollar emerged as the preferred safe-haven currency, appreciating against all major currencies, while the Australian and New Zealand dollars were particularly weak during this risk-off session. The volatility index (VIX) increased by 3 points to 12.6, indicating heightened market anxiety.
Crude oil prices benefited from the geopolitical headlines, with WTI rising by 10.3% and Brent by 9.2%. In contrast, precious metals, including gold, silver, and copper, experienced declines.
Technical Analysis
Brent Crude Oil
This month has seen extreme volatility in crude oil prices, with a high-to-low range of 32%, marking the most volatile month since March 2022. Brent crude is currently trading within the $80–$120 range, with market sentiment gravitating towards the $100 level. Historically, oil prices tend to rise during geopolitical tensions, prompting traders to shift into cash and impacting gold prices negatively.
Gold Futures
Gold's status as a safe-haven asset was challenged as it fell alongside equities. The recent high marked a lower high compared to previous weeks, indicating bearish momentum. The trading volume on Thursday was notably higher, suggesting a bearish initiation. The critical support level for gold is at $5,000, which traders are closely monitoring. A break below this level could lead to a more significant pullback, while a bounce could attract dip buyers.