Gold Prices Surge as Geopolitical Tensions Between Iran and Israel Drive Investment Flight

Investing.com – Within hours, the yellow metal will return to movement with the opening of the Asian, then European, then American markets. Next week’s trading is expected to open higher, driven by the growing geopolitical unrest between Iran and Israel. After reaching an all-time high of 2,400 per ounce last week, gold remains an essential haven for investors amid escalating conflicts in the Middle East.

Last week, XAU/USD settled at $2,344.235, up $14.075 or +0.60%. The highest level during the week was $2431.59.

What really moves gold?

There are many other reasons that could explain why gold has performed so well this year. Here are some possible explanations for its rise:

Bull trap:

Gold’s relentless rise could be fueled by a self-fulfilling speculative frenzy. This trend following behavior can create vertical rallies that are often unsustainable over the long term. If this dynamic prevails at the moment, a sharp downward correction may occur once sentiment changes and valuations return to normal.

Expectations of a difficult and sharp decline in the global economy:

Some market participants may be hedging against the economic downturn caused by strict monetary policy tightening in 2022-2023 and the fact that policymakers may keep interest rates higher for longer in response to stalling progress in curbing inflation.

Return of inflation:

Gold bulls may take a long-term strategic approach, betting that the Fed will lower interest rates no matter what as an insurance policy to prevent negative developments in an election year. Cutting interest rates while consumer prices remain well above the 2% target could risk triggering a new wave of inflation that would ultimately benefit precious metals.

Although all scenarios are plausible, the momentum-driven explanation seems more convincing. Throughout history, we have seen many occasions where popular assets have succumbed to speculative fervor, sending prices soaring to unsustainable levels disconnected from fundamentals before eventually reversing once sentiment finally changes. Gold may await this fate, although the timing remains uncertain.

Technical analysis of gold prices

If the reversal extends in the coming trading sessions, support appears at $2,305, followed by $2,260. In case of further weakness, eyes will be on $2,225.

On the flip side, if XAU/USD turns higher and rises again, $2,430 will be the first line of defense against further rises. As the markets extend into overbought territory, gold may struggle to break above this barrier, but in the event of a breakout, we may see a move towards $2,500.

The bottom line

Gold prices are likely to continue their volatile trend over the next week, with a strong possibility of maintaining or even increasing their upward momentum. Ongoing and potential future developments between Iran and Israel will play a crucial role in influencing the market, as gold is expected to remain one of the assets of choice for those looking to hedge against geopolitical risks.

Overall, the direct conflict between Iran and Israel, coupled with ongoing global economic concerns, ensures that gold remains an attractive investment for those seeking stability in an increasingly volatile world.