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The global stock market was "bloodbathed" and triggered a sell-off in gold. Did the attack on the US military base provide support? Analysts: Momentum is still in favor of sellers
2024-08-06
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Global stock markets suffered a collapse, which affected the gold market. The gold price fluctuated by nearly $95 in a single day, which is an extremely rare performance.
In the Asian market on Monday, spot gold once hit $2458.78/ounce, which was the intraday high; then the gold price plummeted, and the gold price once fell to $2364.19/ounce during the European session, setting a low for the day. Then the gold price rebounded sharply and finally closed at $2409.49/ounce.
As of the close, the gold price fell by $32.85 on Monday, a drop of 1.35%.
FXStreet analyst Christian Borjon Valencia pointed out that the weaker-than-expected US economic data last week triggered a global market sell-off. The gold price in the North American market fell by more than 1% on Monday, but it had rebounded from a six-day low of $2364/ounce.
Valencia wrote that financial markets are beginning to digest the possibility of a recession in the United States. Two "bad" reports from the U.S. showed a sharp decline in manufacturing activity from the Institute for Supply Management (ISM) while non-farm payrolls rose far less than expected, spooking investors. Traders expect the Fed to cut interest rates by 50 basis points at its September meeting.
The dollar index, which tracks the performance of six currencies against the dollar, fell 0.50% to 102.70 on Monday.
U.S. Treasury yields fell further, with the 10-year Treasury yield falling 1 basis point to 3.783%. However, the 10-year Treasury yield has rebounded from a multi-week low of 3.667% hit earlier.
Global stock markets were "bloodbathed" and triggered a gold sell-off
Gold prices fell sharply on Monday, mainly due to a wider global market sell-off caused by growing economic concerns.
The weak non-farm payrolls data released by the United States last Friday triggered concerns that the United States was in a recession. After causing a sharp drop in U.S. stocks, this stock worry also spread to global markets.
U.S. stocks closed sharply lower on Monday, with the Dow Jones Industrial Average plummeting more than 1,000 points, the Nasdaq falling 3.4%, and the S&P 500 index posting its biggest one-day drop since 2022. Concerns about a U.S. recession have led to a sell-off in global markets. Buffett's reduction of Apple holdings has exacerbated the selling pressure on U.S. stocks.
Japan's Nikkei 225 index closed down 12%, the biggest one-day drop since the Wall Street crash in 1987.
Kitco Metals senior analyst Jim Wycoff said: "Investors are frightened and rushing to sell everything they can, including gold and silver." At the same time, platinum and palladium used in automotive catalytic converters were also sold, which also reflects the market's growing concerns about industrial demand.
Although gold should be able to play its safe-haven qualities in uncertain times, it was not immune to Monday's sell-off as investors sold assets across the board.
David Meger, director of alternative investments and trading at High Ridge Futures, pointed out that what was seen in the early trading was that risk assets were under pressure across the board, and gold was also affected by the same pressure.
But analysts said gold, which has risen more than 16% so far this year, could still regain its footing in the future given continued economic and political uncertainty and expectations of a rate cut from the Federal Reserve. Rate cuts are good for gold prices.
"Increased geopolitical tensions and hopes of a bigger rate cut from the Federal Reserve will create supportive conditions for gold prices," said Han Tan, chief market analyst at Exinity Group. "Ultimately, gold prices are expected to hit all-time highs once tensions ease."
U.S. military base attacked, Middle East tensions support gold prices
Valencia noted that despite the decline on Monday, gold prices closed back above $2,400 an ounce. Gold prices were boosted by rising tensions in the Middle East; a U.S. base in Iraq was attacked by missiles.
Valencia said that rising tensions in the Middle East limited gold's decline as Israel awaited a response from Iran and Lebanon after the assassination of a Hamas leader last week. Sky News Arabia cited Iraqi sources as saying that a U.S. base in Iraq was attacked by several missiles.
On August 5, local time, Iranian Islamic Revolutionary Guard Commander Salami spoke about the assassination of Hamas leader Haniyeh in Iran. Salami said that Iran will respond severely to Israel at the right time.
Salami said that Israel made a mistake in assassinating Haniyeh, and Iran will respond severely to Israel at the right time.
Iraqi military sources said on August 5 that the Assad Air Base, where US troops are stationed in Anbar Province in the west of the country, was attacked by four rockets that night. Some Iraqi media said that two US soldiers were injured in the attack on the Assad Air Base that night.
According to US officials, an Iraqi military base was attacked by rockets on the 5th, injuring several US personnel. The attack was suspected to have occurred at the Assad Air Base in Iraq.
On the evening of August 5, local time, an explosion and thick smoke occurred at the Assad Air Base, where US troops are stationed in Anbar Province in western Iraq. No organization or individual has claimed responsibility for the attack.
Commenting on the incident, a US Department of Defense spokesperson noted: "Initial assessments indicate that several US military personnel were injured and base personnel are currently assessing the damage."
How to trade gold?
During Monday's European trading session, gold prices retreated to the 50-day simple moving average (SMA) of $2,365/oz before rebounding and reclaiming $2,400/oz, wrote Christian Borjon Valencia, an analyst at FXStreet. Despite the recovery, momentum still favors sellers.
The relative strength index (RSI) is about to turn bearish after a sharp decline over the past three days and is about to break below the RSI neutral line. A break below this level could accelerate the decline in gold.
Valencia pointed out that if gold prices fall below $2,400/oz again, the 50-day moving average may be challenged. Once this average is lost, the next support level will be the 100-day moving average of $2,340/oz, followed by the May 3 low of $2,277/oz.
Conversely, if buyers reclaim $2,450 an ounce, the next resistance level would be the August 2 peak of $2,477 an ounce, Valencia added. A break above the latter would see gold target the all-time high of $2,483 an ounce and then $2,500 an ounce.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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