Gold

Tuesday, 6th June 2017 12:11 - by Rajan Dhall

As political tensions increase the price action in gold should show investors how important the yellow metal is in the middle east. Saudi Arabia is seen to be cutting ties with Qatar after the Saudi's accused Qatar of supporting Iranian Shi'ite groups. Its not only Saudi Arabia, the United Arab Emirates, Egypt and Bahrain have also cut ties with Qatar leaving it isolated in this conflict. 

Since the story broke we have seen roughly a 2.8% rise in gold prices and the DXY has fallen 0.84%. We are now nearing the 17th April high of $1294.83, which was the highest price seen in 5 month prior to it being achieved. If we break that high it will be the yearly high and surely the $1300 level will be in sight. 

The US are now looking to intervene and mediate talks between the nations alongside China with rumors that Iran are said to be open to talks. US officials have stated the small Gulf state was too important to US military and diplomatic interests to be isolated. America has many reasons to want to promote unity within the region as Qatar is host to the largest US air base in the Middle East at Al Udeid. There are humanitarian implications in this conflict that also need to be addressed with many non oil imports coming from the Saudi border into Qatar including food. 

In terms of trade scenarios this is a fairly simple one, if the talks fail and tensions increase we could see the $1300 level break in which case targets higher up are around the $1315 level and on the downside support levels reside at $1263.50 and $1250. Looking at the price action on the chart although this move has some momentum behind it, it does not yet look overstretched. In July through to October last year the mean value area of around $1340 looks like a potential target if distribution extends to higher levels, but remember the recent range high of $1300 needs to be broken first.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.