Gold outlook: Israel-Iran continue to exchange blows

Gold’s price has moved lower since the beginning of the week, with gold’s price currently near $3385 per troy ounce. In today’s report we intend to discuss fundamental issues that may be affecting the precious metal’s price action and conclude the report with a technical analysis of gold’s daily chart.

Israel-Iran war continues with fresh attacks occurring today

The war between Israel and Iran enters day five. Given the barrage of missiles being sent between Tehran and Tel Aviv we tend to view this as a war, albeit not a traditional ground war, but rather a war of air superiority. To recap, the relationship between the US and Iran severely deteriorated last week after President Trump’s comments when referring to preventing Tehran’s development of nuclear weapons, that, “it would be nicer to do it without warfare, without people dying, it’s so much nicer to do it” which resulted in Iran’s Defence Minister stating that “If a conflict is imposed on us … all US bases are within our reach and we will boldly target them in host countries”. In turn this appears to have provided Israel with the opportunity it was looking for in order to strike Iran, with them launching strikes since Friday which have resulted in the deaths of numerous high-ranking officials, such as the wartime chief of staff and, most recently the newly appointed wartime chief of staff. Moreover, Israel has targeted nuclear scientists and Iranian leadership in an attempt to cripple the regime’s military leadership and nuclear programme. In retaliation, Iran has apparently fired 370 ballistic missiles towards Israel in addition to a barrage of drones. The question now is as to whether the US will get involved on a military level and whether the end goal for Israel is the destruction of Iran’s nuclear program or a possible regime change which could heighten the already sky-high tensions in the region and raise significant worries about the regional power structure and stability. Overall, the two nations are still going at it with Israel renewing its attacks on Iran earlier on today and Iran could possibly retaliate later on today as well. In turn the ongoing war between Israel and Iran may have aided gold’s price given its status as a safe haven asset. However, the US President left the G7 meeting earlier  in order to return to Washington with French President Macron stating that the reason was in order to broker a ceasefire deal between Israel and Iran, a fact which the US President has debunked and has stated that “I have not reached out to Iran for “Peace Talks” in any way, shape, or form. This is just more HIGHLY FABRICATED, FAKE NEWS! If they want to talk, they know how to reach me. They should have taken the deal that was on the table - Would have saved a lot of lives!!!”`, which tends to cast doubt on the possible ceasefire scenario. In conclusion, the apparent continuation of hostilities between Iran and Israel could potentially continue aiding gold’s price until the situation reaches its conclusion, whether via a regime change or an agreement being reached by all parties.

Fed interest rate decision to occur this week

The Fed’s interest rate decision is set to occur this Wednesday, the 18^th of June. The majority of market participants are currently anticipating the bank to remain on hold, with FFF currently implying a 98.8% probability for such a scenario to materialize. Therefore, attention may turn to the banks accompanying statement and Fed Chair Powell’s press conference following the bank's decision, where should it imply that the bank may remain on hold for a prolonged period of time, it could aid the greenback whilst weighing on gold’s price given their inverse relationship and vice versa. In our view we would not be surprised to see Fed policymakers refraining from committing on a particular path moving forward as there still persistent issues regarding the US’s trade ambitions and with the geopolitical situation in the Middle East it may have blurred the economic outlook moving forward.

Technical analysis

XAU/USD daily chart 

Support: 3240 (S1), 3115 (S2), 2980 (S3). 

Resistance: 3385 (R1), 3500 (R2), 3645 (R3).  

XAU/USD appears to be moving in a predominantly upwards fashion. However, we should note that the precious metal’s price appears to be retracing to lower ground with gold’s price resting on our 3385 (S1) support level. Nonetheless, for our bullish outlook to be maintained, we would require a break above the 3500 (R1) resistance line with the next possible target for the bulls being the possible 3645 (R2) resistance level. On the other hand, for a bearish outlook we would require a clear break below the 3385 (S1) support level with the next possible target for the bears being the 3240 (S2) support line. Lastly, for a sideways bias we would require gold’s price to remain confined between the 3385 (S1) support level and the 3500 (R1) resistance line.