Two Things Gold Traders Should Keep an Eye On

Despite solid data from U.S. companies that reported results this week and the week before, the stock market in the United States is expected to conclude the week in the red once again. Traders and investors aren't worried about economic data, fundamentals of the economy, or corporate earnings like they usually are; instead, they're fretting over the conflict between Israel and Palestine. Gold is expected to end the week with significant gains for a second week in a row, despite the fact that traders believe the true rally hasn't begun, reflecting widespread concern about the ongoing fighting and its potential repercussions. There is one major incident, however, that might derail gold's surge.

Background

A majority of U.S. stock indexes, including the S&P 500 index, are not only poised to close the week in the red, but also the month. Since the bear trend was formed a few months ago, this isn't the first month that the S&P 500 will finish in the red. However, the Israel and Palestine fighting has agitated investors, and this may not be reflected in the stock market's performance at first glance. Since the the volatility index isn't actually delivering a warning that traders should be concerned, one must dive deep to see what is boiling beneath the surface.

In truth, the VIX index has behaved almost as expected, although with some abnormally large swings since the beginning of the month. The U.S. backing for Israel has kept most of the regular risk-off signs under control, despite the concerns of traders and investors who thought the U.S. may not back Israel when it started bombing Palestine. Because of this, there hasn't been a widespread fear as there was during the Russia-Ukraine conflict.

The danger

Investors are worried that the situation in the Middle East will only worsen. Bitcoin and gold are seen as safe haven sources, away from the dollar or U.S. equities. The price of Bitcoin has skyrocketed since Israel began bombing Palestinian territory, possibly because investors are looking for a way to hedge themselves from the U.S. dollar, as the United States is Israel's most important ally and is now directly involved in the conflict. Bitcoin's price could also be rising due to the likelihood of a Bitcoin ETF.

Also of considerable importance in times of tremendous uncertainty is the gold price, which tends to rise when investors start to doubt the value of the dollar as a reserve currency and the solvency of the United States' debt. Gold's price has been on an upward trend for the previous three weeks, and it seems like that trend will continue this week.

The crucial question

The recent surge in the might gain even more steam in the coming days as Israel readies itself for a ground assault in Palestine. The leaders of the Arab world, as well as the leaders of a majority of nations, want a ceasefire and do not want the situation to escalate. But if the Israeli government launches a ground offensive, the price of gold might rise beyond $2,100, and the upside could experience a significant increase if the assault occurs on a weekend.

The Fed event that will occur next week when the Fed Chairman will come out and deliver an update on the Fed's assessment of U.S. inflation and the economy remains a risk for the gold price. I think the Fed is finished raising interest rates; doing so now will only damage the economy more. Although the Treasury Secretary thinks the United States can afford many wars, the price of gold may continue to rise if the Federal Reserve doesn't raise interest rates. However, if the Fed makes an unexpected move, the gold price may experience a minor retracement and move closer to the $1,900 level.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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