How Geopolitical Unrest Is Affecting Oil and Global Currencies

Euro strength and dollar weakness further emerge in thin trading activity as geopolitical uncertainty creeps higher (Israel-Hamas & India-Pakistan), giving gold a $13 boost to a 10-week high of $890/oz and more than a $5 rise to crude oil at $42.17 /barrel. The escalating violence between Israel and Hamas served as the main catalyst to oil's $5 rise. Mixed reports of troop redeployment by Pakistani military towards the Indian border were dampened by news that the two nations' military officials have exchanged talks. This weekend marked the 1-year anniversary of the assassination of former Pakistani PM Bhutto, an event, which resulted into a $30 climb in the price of gold in less than a week.

click to enlarge

Aside from geopolitics, gold and oil are also boosted by a return to broadening USD weakness, especially in the aftermath of last week's jobless claims and personal consumption reports, which illustrated the accelerating path of unemployment and appreciating rate of decline in inflation, both of which highlight the need for the Federal Reserve's latest push on the reflationary pedal.

Euro Extends Anti-Dollar Gains. Euro's anti-dollar attribute is being underscored by: (i) the ECB's reluctance to telegraph further easing as in the case of the BoE (ii) the aforementioned negative releases from the US and (iii) the ensuing geopolitical uncertainties from the Middle East and South Asia. Euro strength is creeping across the board, hitting a fresh all time high vs GBP at 0.9795, paving the path for parity as early as this week. One of the several factors making parity possible is remaining technical strength in EURUSD, which is likely to retest its 200-day moving average (tested 2 weeks ago) currently at $1.4650. The level also marks the 61.8% retracement of the decline from the $1.6037 high to the $1.2328 low. And finally, despite USDJPYs breach under 90 yen, EURJPY easily penetrated through the 129 yen figure, eyeing 130.50 and 131.

Gold Eyes $926. Gold broke a key resistance of $880, which marked the trend line extending from the July 15 high and the 61.8% retracement of the decline from the said high to the $698 low of Oct 23. A simple look at the weekly chart above demonstrates how the trend line resistance was tested at 2-month intervals, suggesting that the last 2 weeks of December may mark the break of the 8-week cycle pattern, and a breach of the trend line, paving the way for a possible reading of $920 by week's end. While a daily chart of gold clearly shows a break of the 5-month trend line resistance, the weekly chart above does not yet show this breach.

Comments

[NOWHEREMAN:]

Gold doesn't eye anything. You are using a weekly chart.

Until the week is over any extrapolation is just wishful.
The Euro's strenght evaporated in the afternoon on Monday with Oil and Gold.

This same type of trading should go on til Wednesday.

All this low volume trading means is that traders are having fun.

The Tale of the Tape will be revealed on Friday.

IMO

2008 Dec 29 01:46 PM

[NOWHEREMAN:]

Simmons: The Trend is up and Oil will go up also.

All of the pundits are starting to agree. This agreement makes me ponder. But even when most analysts are in agreement, it doesn't mean you should Run in the opposite direction.

They could be right for quite a while. IMHO

2008 Dec 29 05:12 PM

[Greg Pinelli:]

Precisely what does that stuff you wrote mean?? You just posted previous and said NOTHING there..now you compound it! The agreement makes you "ponder" what???
Of course..the author is correct..gold does eye things..it eyes the strength of paper money and credit..it eyes the future and the unrest we may see geopolitically...My God..where do some people get their notions from!!!


On Dec 29 05:12 PM aitvaras wrote:

> Simmons: The Trend is up and Oil will go up also.
>
> All of the pundits are starting to agree. This agreement makes me
> ponder. But even when most analysts are in agreement, it doesn't
> mean you should Run in the opposite direction.
>
> They could be right for quite a while. IMHO

2008 Dec 30 09:06 PM

[Greg Pinelli:]

Your precisely correct! At least Marc Faber sticks his neck out and has a track record....2 very solid reasons for buying gold...It certainly makes no sense like a...whatever to hold it's being held down by conspiracies from outer space...but then..some reason is better than none...


On Dec 29 03:12 PM Simmons wrote:

> Marc Faber is bullsih on Gold for 2 reasons:
>
> 1) Increased Geo-Political Risks
> 2) Money Printing from the FED
>
> marcfaberblog.blogspot.../

2008 Dec 30 09:10 PM

[NOWHEREMAN:]

Schiff no longer believes gold will rise soon, I guess Faber must be your latest guru.

Sticking out your neck for any reason is irrational. "Some reason" should not be enough to risk one's capital.

IMO

2008 Dec 30 10:55 PM

[NOWHEREMAN:]

Besides Mr Pinelli, I was commenting on his weekly chart and the last paragraph which started with: "Gold eyes $926" and went on to make extrapolations into the future if Gold did certain things. He ended with " the weekly chart above does not yet show this breach".

Since I'm able to read, I interpreted it as a work in progress. Conclusions to be drawn after week's end.

How about I rephrase it for you Pinelli, IF the 8 week cycle isn't broken, Then gold moves Down again. Lower highs and lower lows with the Potential of a breach of the $700 level on a weekly basis.

Mr. Laidi, have I laid out the potential properly?

2008 Dec 30 11:15 PM

[NOWHEREMAN:]

Mr. Laidi? Well, I'll be back within 27 hrs. What will Gold eye if the 8 week cycle is not broken will be my question.

If it is broken, I will congratulate you one your foresight.

Jan 01 01:30 PM

[NOWHEREMAN:]

Guess what, the "8 week cycle" remains intact.

Jan 02 07:07 PM