Gold has traded down to 1286.00 this morning from its positive 1290.00 close as traders take of weekend risk hedges in early Asia. Geopolitical risk will continue to be the dominant theme this week with gold sensitive to any escalation in tensions vis-a-vis the Korean peninsula. It remains our base case that the United States options are very limited militarily regarding North Korea and the likelihood of them firing the first shot very unlikely. The same cannot be said of the other side although again we regard the chances as very low.
That said, there is no reason why the respective chest thumping cannot get louder, and this should ensure that gold is bid on any significant dips this week. Wednesday’s FOMC minutes may also continue to boost gold if it appears that the Federal Reserve is continuing to blink on potential further U.S. rate hikes.
Gold has support at 1282.00 initially followed by 1274.20. All eyes, however, will be on the 1295.00/1296.00 region which has capped gold this year. From a technical perspective, a daily close and consolidation above this region would be a very bullish development and imply that a 1300 handle on gold prices may not be far away. It may, however, require some more action from the Korean peninsula to get us there this week.