Gold price stalls after Iran attack

The Gold price rose to record highs early this week following Iran's retaliatory crackdown. An escalation was imminent with a rocket attack on two US military bases in Iraq, but fortunately this did not materialise. Trump then announced in a press conference that he is not looking for a war with Iran. Calm returned to the financial markets, causing the gold price to fall back to the level of the beginning of this week.

While the price reached a peak of $1,610 per troy ounce on Tuesday, the price had fallen back to just above $1,550 on Friday afternoon. This means that the precious metal in dollars is back to the level of last Friday. In euros, the gold price is higher than a week ago, because the euro weakened against the American currency this week.

The price of gold in euros is around €1,400 per troy ounce at the time of writing, compared to a peak of €1,440 on Tuesday and a closing price of €1,390 last week. With that, the precious metal reached a new all-time high in the European currency this week.

Gold price is back to the level of a week ago (Source: Goldprice.org)

Gold price stabilizes

Gold has surrendered its gains from the beginning of this week, but is still at a relatively high level. In recent weeks, the price of the precious metal has already risen quite a bit and was given an extra boost by the geopolitical turmoil. However, the correction is not entirely unexpected, as the gold price had already risen very fast from a technical point of view. The so-called Relative strength index (RSI) - an indicator of momentum - was already at a rare high of 86 on Monday.

The Relative strength index always has a value between 0 and 100. A value above 70 generally means that the price has risen too fast, while a value below 30 means that the price has fallen too much. Since the year 2000, this index for gold has been only three times before in October 2010, February 2016 and June 2019. In all these cases, gold took a step back, only to rise again.

According to Eric Mecking, analyst of Geotrendlines, gold continues to rise in the long term. It is important to remember that the Commitment of Traders (COT), the really big boys in the gold world, are now heavily short the precious metal. "Because gold is also at the end of the upward fifth wave, I expect a pullback in the coming weeks where the support of $1,540 will be crucial", according to Mecking. Below you can see the development of the gold price and the positions of traders in this market.

Development of gold price and position of traders (Source: Finviz)

This contribution was made from Geotrendlines