These are the types of scenarios that professionals create models for, and speculators live for. So these two players are likely to be the source of volatility in the trading market, with one trying to layoff risk wherever they can and the other betting on huge rallies.
With the attack on Iran and its subsequent retaliation stealing the headlines all weekend, we expect to see some extra safe-haven demand for gold, meaning traders who already have some, chasing it higher. New investors buying the headlines will be another player and professionals who need to offset stock market losses, for example. This all adds up to huge volume, wicked volatility and the chance of a whipsaw trade.
Breakout Over $5143.89 Puts Record High at $5602.23 in Play
Technically, after consolidating for weeks between the 50-day moving average at $4794.69 support and Fibonacci resistance at $5143.89, XAUUSD finally broke out of this range last week, signaling the return of strong buyers, or buyers who are willing to buy strength and take offers. During the consolidation phase, investors were more passive, choosing to bid and wait for the market to come to them.
With the close at the one-month high on Friday, gold was put in a position with no visible resistance until the record high at $5602.23, leaving us no choice but to target that price.
A Gap Higher Near the Record Could Be a Trap
I don’t believe I can be a good analyst without mentioning some of my concerns. The first being, the price action last week and the close on the weekly high meant that there were a lot of longs in the market before the war began. And this means a gap higher opening especially near the record high could be sold after the initial surge. This would trap anyone who chased on the opening and bought. Conditions could turn ugly and volatile if the market tries to shake out the weakest longs.
Other factors I see that can limit the upside are a stronger dollar, a rebound in stocks after an initial sell-off, the announcement of fresh negotiations between Iran and the U.S.