Iran Strikes Back at US, Risk Aversion ReignsA tidal wave of risk aversion engulfed financial markets on Wednesday, after Iran launched retaliatory missile strikes against US forces in Iraq.
- Risk aversion spikes on Iran retaliation
- Gold punches above $1600 amid flight to safety
- Oil prices soar on geopolitical shocks
Asian shares tumbled during early trade while Gold punched above $1600 as escalating tensions in the Middle East fueled risk aversion and accelerated the flight to safety. Iran’s retaliation has raised fears of a full-blown conflict with the United States, and this negative sentiment is poised to weigh on equity markets this week. There is a lot of uncertainty in the air with markets still in ‘wait and see’ mode until fresh clarity is provided on the US-Iran faceoff. US President Donald Trump is expected to make a statement on Wednesday in response to Iran strikes which should provide some direction to markets.
Gold turbocharged by risk aversion
Gold exploded higher on Wednesday, punching above $1600 for the first time in almost seven years as geopolitical shocks sent investors stampeding to safety.
Escalating tensions in the Middle East have hit global risk appetite, ultimately boosting buying sentiment towards safe-haven assets. Gold bulls remain in the driving seat with further upside expected as uncertainty supports the flight to safety.
Focusing on the technical picture, the precious metal is heavily bullish on the daily charts as there have been consistently higher highs and higher lows. A solid daily close above $1600 may encourage a move towards $1630. Alternatively, sustained weakness below $1600 could trigger a retracement back towards $1570 and $1555.
Oil sensitive to geopolitics
The explosive movements witnessed in oil prices over the past few days highlights how sensitive the commodity is to geopolitical shocks.
WTI Crude blasted higher on Tuesday evening, breaking above $65 after Iran fired missiles at air bases in Iraq housing U.S. troops. Given how this development raises fears of more tensions in the Middle East which is home to major oil-producing countries, Oil prices are poised to remain volatile in the near term. It will be interesting to see how far geopolitical shocks support oil prices before investors re-direct their focus back towards US-China trade and global growth.
Focusing on the technical picture, WTI Crude pared some of its gains after spiking towards $65.60 during the early parts of Wednesday morning. Bear could silently re-enter the scene if prices close below $62.00 with $60.50 acting as the first level of interest. However, a move back above $64.00 could open the doors back towards $65.60.
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