Gold, Oil Rally Sharply as Middle East Tensions Escalate; US FOMC, NFPs Near

Gold, Oil Rally Sharply as Middle East Tensions Escalate: US FOMC, NFPs Near

• Gold rallies on haven bid as Middle East tensions escalate.
• Oil jumps on supply fears.
• FOMC meeting later today may cement a September rate cut.

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The reported death of Hamas leader Ismail Haniyeh in Iran, allegedly from an Israeli missile strike, significantly escalates tensions in the Middle East. This event is likely to trigger retaliatory attacks soon.

Iran’s leadership has responded with strong statements:

• President Masoud Pezeshkian warns that Iran will “make the occupiers (Israel) regret this cowardly act.”
• Supreme Leader Ayatollah Ali Khamenei declares, “We consider it our duty to avenge his blood.”

These provocative statements raise concerns about the region’s potential for a wider conflict. The prospect of an all-out war in the Middle East creates uncertainty in the oil market, as regional instability often impacts oil production and distribution. The situation remains volatile, with potential implications for global energy markets and international relations. Markets are closely monitoring developments for signs of further escalation or diplomatic efforts to defuse tensions.

While the political scene looks uneasy at best, upcoming US events and data may underpin the higher oil and gold moves. Later today the latest FOMC meeting should see US borrowing costs remain unchanged, but Fed chair Jerome Powell is expected to outline a path to a rate cut at the September FOMC meeting. On Friday the monthly US Jobs report (NFP) is forecast to show the US labor market slowing with 175K new jobs created in July, compared to 206k in June. Average hourly earnings y/y are also seen falling to 3.7{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} this month compared to last month’s 3.9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}.

US oil turned over 2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} higher on the news but remains within a multi-week downtrend. Weak Chinese economic data and fears of a further slowdown in the world’s second-largest economy have weighed on oil in recent weeks. Chinese GDP slowed to 4.7{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} in Q2, compared to an annual rate of 5.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} in Q1, recent data showed.

US Oil Daily Price Chart

Retail trader data shows 86.15{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} of traders are net-long US Crude with the ratio of traders long to short at 6.22 to 1.The number of traders net-long is 5.20{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} higher than yesterday and 15.22{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} higher than last week, while the number of traders net-short is 10.72{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} lower than yesterday and 31.94{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} lower than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggestsUS Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias.

Gold has pulled back around half of its recent sell-off and is heading back towards an old level of horizontal resistance at $2,450/oz. This level was broken in mid-July before the precious metal fell sharply and back into a multi-month trading range. Any increase in Middle East tensions or a dovish Jerome Powell tonight could see the precious metal not just test prior resistance but also the recent multi-decade high at $2,485/oz.

Gold Price Daily Chart

Charts using TradingView

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