Posted on August 30, 2013
Well what a week it has been. The U.S. could be on the verge of initiating airstrikes against Syria after it was determined that the Syrian government used chemical weapons against rebels. This situation is horrific enough to begin with, but has snowballed into a potential geopolitical crises of extreme proportions as action by the U.S. has the potential to elicit a response from not only Iran, but also Russia. While it is doubtful that Iran would really want to get involved in this conflict,they could attempt to block the strait of Hormuz-which could choke off a large amount of the world’s oil supply.
Any attempt by Iran to do this could send oil prices skyrocketing further and could cause world stock markets to crash. In addition, Russia has said there would be consequences if the U.S. acts-and already strained U.S./ Russian relations are getting worse. Russia has now sent warships to the area as well. The next few days will likely tell us how this situation plays out. Hopefully a peaceful solution can be found. If not, tensions could cause buying in hard assets such as crude and gold as a massive flight to safety takes place in world markets.
As of this post, gold is looking like it wants to end the week right around where it started-near the $1400 level. It seems that a bout of profit taking has set into the gold market, and other safe haven assets as well as metals and oil prices are lower today. While no one can predict the future, it does seem that perhaps the odds of an airstrike coming this weekend have gone down considerably as U.S. allies have demonstrated that they are not on board with the idea. The big question now is will the U.S. go it alone or not.
Although it is a bit surprising to see the metals down today as much as they currently are, the uptrend remains intact and we still expect further upside in the coming sessions. Gold is currently testing its 9 day EMA at the $1393.30 level and we expect this to hold. Below this level, $1380ish also looks to provide some support. Looking at the upside, we still feel that the 200 day EMA in the $1470 area will act as a magnet for gold prices, and that a test of this area will likely be coming in short order. A meaningful failure at this level could signal an end to the current rally while a run through it with consecutive closes above this level would likely attract fresh buying. Should this fresh buying enter the market, the next up leg in gold prices could take the market back to the breakdown level at $1550.