Gold & Oil Rally: Global Chaos, U.S. Elections and Central Banks in Action
10/16/2024, 2:12:54 PM
Commodities have been maintaining a strong bullish narrative amid chaos in the Middle East and rate cuts by central banks. Find more about trading gold and oil on your FundingPips account.
Recent geopolitical events and the expected U.S. elections impact the prices of oil and gold, triggering strong bullish momentum. Investor sentiment and market uncertainty cause such changes in the market.
Crude Oil Rally
Most conflicts cause disruptions in supply chains, which continuously drives oil prices higher. Sanctions against Russian oil exports destabilize the global energy market, and the continuing Russia-Ukraine war has driven global supply down and pushed prices higher.
The Israel-Hamas war only worsens things by stirring fears that instability could spread to the broader Middle East, affecting world oil production.
Although Israel is not one of the major oil producers, the fear of a wider regional conflict involving countries such as Iran, Lebanon, and Saudi Arabia usually drives oil prices up. During the war, traders assume disruptions will occur in the supply chain causing higher oil prices.
Cooling Inflation and Rate Cuts
Global inflation has gradually cooled to normal levels. Hence, the central banks have started easing their policies. With lower interest rates, the global economy may see growth and increased activity. It may lead to increased oil demand, resulting in higher prices. Meanwhile, the recession fear due to lowering inflation may decrease the oil demand.
U.S. Elections to Dominate Oil Market
Speculation over energy policy pushes oil prices ahead of the U.S. elections. In case the Democrats win, tight regulations on fossil fuels will constrain domestic production, hence promoting high prices. The Republicans may increase oil production, and any change in foreign policy towards key oil-exporting countries may further influence the supply, leading to higher prices.
Crude Oil Technical Analysis
The crude oil price fluctuates between $64 and $78. Right now, the price consolidates gains with no clear bias. The US dollar’s strength may keep a lid on the gains. Bullish continuation needs a break above $78. However, the probability of doing so is low.
Gold Hitting All-time Highs
Gold is also trading high in 2024 as it is considered a safe-haven asset. Investors always buy gold for its perceived safety whenever geopolitical and economic uncertainty exists. Currently, the Ukraine war, rising tensions between China and Taiwan and the unresolved Middle East conflict forces traders to seek refuge in gold. That’s because it retains its value during such a crisis.
Fed’s Easing Policy
Anticipation of US Federal Reserve policy also contributes to the increase in gold prices. Investors expect lower interest rates in 2024 and early 2025 as inflation retreats. With lower interest rates and a weaker US dollar, gold is more attractive to international buyers, pushing its price higher.
Gold Bulls Awaiting U.S. Elections
The coming U.S. elections may increase uncertainty in the markets, which in turn may cause higher gold prices. Elections are volatile, and depending on who wins, they may mean major changes to fiscal, monetary, and foreign policies. Investors are also increasingly using gold as a hedge against potential risks related to election outcomes.
Gold Technical Analysis
Gold price is technically overbought and retreating slowly amid profit-taking. The Fibonacci retracement level of the recent rally reveals a 50% level at $2,581. Hence, the probability of testing the level exists. Alternatively, breaking above $2,635 may result in a bullish continuation.
Final Take on Gold and Oil Prices
Both oil and gold experienced uptrends due to geopolitics and uncertainty over the U.S. presidential election. Supply disruption concerns continuously dictate oil prices due to the war in Ukraine and the Middle East. Gold usually benefits from its status as a haven during global turmoil. As the U.S. elections get closer, the political and geopolitical terrain will likely continue to affect gold and oil prices.
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