Geopolitical tensions between US and Iran have helped gold to gain, but has the upside move gone too far?

Gold W1 08-01

The high today took out the $1,600 level but price has struggled to hold above that as we see more calm in US-Iran tensions to start European trading. Right now, gold is retracing lower back under $1,590 as fears of an all out war ebb a little bit.

I've been highlighting the attractiveness of gold over the past few weeks but this is perhaps where the line needs to be drawn. I wouldn't blame traders if they scale out on longs at these levels as we test the 61.8 retracement level @ $1,587 and the $1,600 handle.

Markets are now waiting on Trump's response to the Iran retaliation earlier and if that doesn't involve significant military action, I reckon markets can take heart in the more peaceful - but possibly temporary - resolution to the matter.

If there were significant US casualties to the Iranian airstrikes earlier, I reckon Trump would not sit too quietly and wait until the US morning to reply. But therein lies the risk as well.

Should there be a major military response by Trump, gold will likely still find bids to creep back above $1,600. If that happens, just be mindful that once the January seasonality and geopolitical tensions fade, gold looks set for a massive reality check down the road.

And depending on the market focus at the time, we could see significant flows either into risky and emerging market assets or perhaps even the dollar.