Gold has hit a record high, trading over $4,400 due to rising geopolitical tensions. With no major economic data expected on Monday, investors are focused on geopolitical events, especially possible military actions by Israel against Iran.

Currency and Stock Market Movements

The US Dollar performed differently last week, gaining strength against the Japanese Yen. Reports about Israel’s actions have made investors cautious, which has contributed to a rise in Gold prices, now up over 1.5% at $4,405. US stock futures showed slight gains after positive results on Wall Street. The US Dollar Index remains steady above 98.50. The Euro dipped after a long rally, with the EUR/USD sticking above 1.1700. Tensions in the Middle East have caused oil prices to rise, with West Texas Intermediate up over 1% at $57.15. The People’s Bank of China kept its loan prime rates the same. The AUD/USD moved closer to 0.6630, while GBP/USD saw a slight increase near 1.3400. The USD/JPY corrected after a big rise, trading lower below 157.50. Gold demand continues to grow due to its reputation as a safe haven, with central banks significantly increasing their reserves in 2022. Gold prices are affected by geopolitical issues, interest rates, and US Dollar movements. Given the high gold prices linked to geopolitical risks, we should consider buying long positions in gold. The increasing accumulation by central banks, which reached a record 1,082 tonnes in 2023, suggests strong demand that could push prices even higher if tensions escalate. Using call options on gold futures or gold-backed ETFs can help us gain upside exposure while managing risks in this unstable environment.

Opportunities and Risks in Oil and Stock Markets

Current oil prices may not fully reflect the risks of a broader conflict involving Iran, a key oil producer. A look back at the 2019 drone strikes on Saudi facilities shows how quickly energy markets can react, with Brent crude spiking 19% in one day. Buying out-of-the-money call options on WTI or Brent futures might be a smart way to prepare for a potential supply shock in the coming weeks. US stock index futures remain steady, giving us a chance to hedge against market downturns. Implied volatility appears low, making protective put options on the S&P 500 or Nasdaq 100 relatively inexpensive. We recall how the VIX, known as the market’s fear gauge, rose sharply from 17 to over 37 during the early 2022 conflict in Ukraine; a similar situation now could trigger a significant sell-off in equities. In currency markets, the Japanese Yen may regain its safe-haven status and strengthen against the US Dollar. The significant difference in interest rates—with the Fed funds rate at 5.25% and the Bank of Japan near zero through late 2024—has fueled a strong USD/JPY rally that could quickly reverse if investors seek safety. We should keep an eye on a significant decline in USD/JPY as an important risk-off signal. Create your live VT Markets account and start trading now.

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