The gold market this morning was once again shrouded in a thick fog of uncertainty after a new series of attacks in the Middle East erupted without warning. The impact of this tension was felt directly in Malaysia, where spot gold (XAU/USD) traded sluggishly around the $4,465 level.
While the war situation should have boosted gold, the market is currently facing a very strange dynamic. Gold's upward momentum has stalled and buyers seem very hesitant, having to admit that for now, the Dollar is more favored by the market due to the expectation of benefits that remain gripping.
Iran's Ballistic Missile Rain and Trump's Truce Drama
US Central Command confirmed that Iran had launched ballistic missiles towards Kuwait, Bahrain and the UAE, while the US military responded with heavy fire on the Islamic Republic's Qeshm Island. While President Donald Trump tried to sound optimistic that an interim peace deal would be reached soon, the military action proved otherwise and shattered Iranian media reports that the talks had stalled.
The news of the physical attack was significant for the market as it kept the ‘risk premium’ high, causing Brent crude oil prices to continue climbing for a third straight day near $97 a barrel, thus extinguishing any remaining hopes of traders seeing global inflation fall in the near future.
US Labor Market Data Explodes: Clear Signal of ‘Higher for Longer’ from the Fed
Not only are geopolitical factors weighing on gold, but economic fundamentals from Washington are also providing additional ammunition to the Dollar. The latest data showed that the US job openings (JOLTS) figure soared to its highest level in almost two years, while the jobless rate also fell.
This strong economic confirmation was further reinforced by the statement of Cleveland Fed President Beth Hammack, who stressed that it is very reasonable to keep borrowing costs high in order to curb stubborn inflation.
This market signal has caused institutional investors to start dumping riskier assets and accumulating the US Dollar as they realize the chances of seeing the Fed cut interest rates this year are getting slimmer, forcing gold to continue its defensive slide.
Israel – Lebanon Talks (This Wednesday) & US NFP Data
The main focus of the market in the near future will be the outcome of the geopolitical negotiation table this Wednesday to see if the flames of war can be extinguished. In addition, traders are now eagerly awaiting the upcoming Non-Farm Payroll (NFP) data to confirm whether the US labor market is truly bulletproof, which will be the key to determining the Dollar's next direction.
