Gold futures are rebounding from an early session setback on Monday as traders continue to respond to the uncertainty in the financial markets regarding a possible escalation of military activity in Syria between the U.S. and Russia after this week-end’s bombing of suspected chemical factories by a US-led coalition.
At 0130 GMT, June Comex Gold futures are trading $1349.60, up $1.70 or +0.13%.
Over the week-end, the U.S., U.K. and France attacked Syria, targeting military positions and research weapons linked to chemical weapons.
Russia, Iran and Lebanon’s Hezbollah group condemned the action while rallying around the Syrian Assad regime. Also of note, they did not threaten retaliation. In the meantime, Saudi Arabia said it would take part in the U.S. coalition if asked. Additionally, the U.S. said it remained “locked and loaded” if there were further chemical attacks on civilians or a retaliation.
The recovery from the early weakness flies in the face of increased appetite for risk with U.S. equity markets trading higher and a drop in crude oil prices because the military activity did not cause any supply disruptions. The move most likely reflects a reaction to the weaker U.S. Dollar.
The price action suggests gold traders remain on edge and at heightened tension levels because of the fiery rhetoric being spewed by Russian President Vladimir Putin who warned on Sunday that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.
In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement.
“Vladimir Putin, in particular, stressed that if such actions committed in violation of the U.N. Charter continue, then it will inevitably lead to chaos in international relations,” the Kremlin statement said.
The early price action indicates that we could see two-sided trading throughout the day since both speculators and professional traders are likely to remain active in the markets.
Speculators will be betting on a rally and they’ll get their expected move if stocks weaken along with the dollar. This will likely occur if there is an active response to the attack.
Professional traders will be watching the events in Syria, but likely to maintain a bearish bias because of rising U.S. interest rates and a strengthening economy. Additionally, a continuation of the nine-session rally in stocks will likely keep the pressure on gold prices. Stocks will be helped by strong earnings reports.
In other news, the U.S. will report Core Retail Sales which are expected to come in at 0.2%. Retail Sales are expected to jump 0.4% from -0.1%.
The Empire State Manufacturing Index is expected to come in at 19.8, down from 22.5. Business Inventories are expected to come in at 0.6%, matching last month’s report. The NAHB Housing Market Index is expected to rise a notch to 71.
Finally, Federal Open Market Committee Member Raphael Bostic is scheduled to speech. Recently, he said he favors raising interest rates twice more this year, but was open to shifting his view if the outlook warranted a different policy approach.
“My forecast had three moves for this year,” Atlanta Fed President Raphael Bostic said on March 23, “To the extent growth accelerates more than our models predict, then four could be prudent. If it comes in less than our models predict, then two could be prudent.”
This article was originally posted on FX Empire
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