And with President Donald Trump having made it clear that he wants the next Federal Reserve Chair to favor lower interest rates, the Fed’s choice looks clear. This announcement comes at a time of increasing belligerence from the United States towards Venezuela. This development has huge significance for global markets. In fact, the Venezuelan parliament has just passed a law specifically punishing disruptions to commercial activities. What the new legislation does is criminalize the seizure of oil tankers. This increased hostility makes the already dangerous environment even worse. At the same time, recent U.S. unilateral actions against Venezuelan oil exports have raised the stakes for financial markets.
As these geopolitical tensions have developed, they have helped create a sharp increase in demand for safe-haven assets. One particular commodity has stolen the spotlight. It has created a nearly perfect series of three cup-shaped patterns — all in a relatively narrow price range. This volatile commodity went parabolic in September and October. For now, it’s pressured under resistance at $4,400 and is consolidating while traders digest the effects of current developments and continuing unfolding events.
Geopolitical Tensions Impacting Markets
The battle between Washington and Caracas is escalating. Both nations currently are pursuing moves that can only increase the escalation of their already hostile relations. The U.S. has increasingly focused on Venezuelan oil exports over the last few weeks, looking to create more pressure on the Venezuelan government. The Venezuelan legislature’s response was to hurriedly pass an emergency law. The law criminalizes any interference with the country’s commercial activity. The situation is dire.
Beyond the diplomatic implications, these changes have been felt in the international financial markets. Investors shouldn’t take their eyes off the action going on across the pond. With tensions increasing around the world, it comes as no surprise that many investors are flocking to safe-haven investments. They love commodities such as gold that perform well in times of crisis.
Commodity Price Movements
And yet, the price of this particular commodity has demonstrated stunning strength in the face of this stormy landscape. After a strong bounce in September and October, price found resistance at about $4,400. A recent breakout above this key resistance line has occurred amid very bullish momentum. This turnaround in sentiment shows how heavily the market has tilted in favor of more price hikes.
This breakout has even greater implications for future pricing. Analysts are confident that the upward trend is here to stay. Indeed, they are speculating that the commodity might eventually spike into the $4,800 to $5,000 territory over the next several weeks. That’s the outlook big-picture, but market participants are becoming increasingly bullish on the commodity’s immediate prospects. This change mirrors how the Council is reacting to the new geopolitical and economic reality.
Economic Indicators Present Mixed Signals
U.S. economic indicators paint a confusing picture. Despite certain data pointing toward potential expansion, other indicators paint a troubling picture of the economy. This uncertainty has helped fuel expectations for more aggressive Federal Reserve rate cuts—which would add even more fuel to rising commodity prices.
President Trump’s plan to pick a new Fed Chair who will favor lower rates feeds right into these expectations. In this environment, increasing commodities’ attractiveness is the lower interest rates. Because they keep down carrying costs, they frequently increase investment in less risky asset classes. Mixed economic data, along with escalating tensions with Venezuela, are particularly impacting the market. At the same time, expectations for future, looser monetary policy are setting the table for upward price pressure in other commodities.