This is hardly surprising given how market dynamics have changed. Equities and gold both are on a bull run as the U.S. dollar persists in its downward trajectory. Related recent anxiety over a possible preemptive military strike by Israel against Iran has reached a fever pitch. Cooler heads seem to be prevailing in the capital markets. Even still, investors are hangin on every inflation number and the FOMC meeting next week. This encouraging trend is producing a positive and somewhat paradoxical and counterintuitive atmosphere in the market.
If gold can hold its ground at this important $3400 barrier, the bull market should continue. This threshold has marked its high-side trajectory for the last two months. This new price point is a result of the market’s continuous re-assessment of geopolitical factors and associated economic trends. In light of these encouraging signs, buyers are once again coming back to the market. Like you’re seeing in consumer price inflation, they want to build on the momentum from last month’s Producer Price Index (PPI) print in cutting rates.
Market Reactions to Geopolitical Tensions
The renewed tension from the threat of war elsewhere in the Middle East has changed market focus and priorities. Investors have become increasingly jittery about the global economic fallout from rising geopolitical tensions.
As a trading representative from IG Markets Limited said, concerns about war have replaced worries about tariffs. Now, all those fears are the biggest tidal wave driving gold prices higher. The third sentiment conveys how, at least among investors, concerns over security and stability have eclipsed concerns over trade.
In reaction to growing anxiety over a possible preemptive strike against Iran by Israel, market participants have been on high alert. Order has been restored in the wake of last night’s brief mini-freak out. For the time being, every heart will be pumping nervous adrenaline as this story continues to develop.
Economic Indicators Affecting Market Trends
We have a better macroeconomic picture Recent economic data, particularly around inflation, has shined some light on the current market environment. The latest consumer price inflation report failed to galvanize significant market activity, suggesting that investors remain cautious despite the data’s implications.
The PPI data featured a similar story. This spurred new buyers to rush back into the market, looking to take advantage of the momentum. York and Zhang note that this string of reports further indicates a stable, controlled inflation environment. This is almost always a positive environment for both equities and gold.
“The price is testing the $3400 area again, a level that has marked the extent of upside over the past two months. Renewed USD weakness always helps of course, and since inflation still looks contained there is reason to expect further falls for the greenback ahead of next week’s likely-uneventful Fed meeting.” – IG Markets Limited
Upcoming Federal Reserve Meeting
Looking ahead to the Federal Reserve meeting next week, investors expect a “no go” on changes to interest rates. Most market analysts are betting there will be no surprises at this meeting, with the Fed continuing on a steady course with its monetary policy.
Traders will migrate away from the U.S. dollar in anticipation of the Fed’s action and further declines in the U.S. dollar are in the offing. The mood among all of the speakers was that it will take more than just a few economic indicators to change the Fed’s course right now.