Unrest in the Middle East has caused crude oil to rally over 15% in the last five trading days. A coalition of ten countries led by Saudi Arabia has launched air strikes in Yemen against Shia Houthi rebels to “defend the legitimate government” of President Abdrabbuh Mansour Hadi. While Yemen is not a large oil producing country, the situation creates instability in the region as a whole. Shia-dominated Iran has already demanded that Sunni-ruled Saudi Arabia immediately halt the air strikes as it is a violation of Yemen’s sovereignty. The geopolitical instability in conjunction with crude oil running up has allowed gold to move higher this week and to break through previous psychological resistance at $1,200.
The combination of worse than expected US economic data and a broad US equity sell off has also helped buoy gold and silver over the past few days. New orders for durable goods fell by 1.40% in February m/m after an increase of 2.00% in January m/m. Gold has now traded higher in seven consecutive trading sessions and it appears that it is ready for a breather. Strong selling capped the market at $1,220 and gold has retreated to hanging just above $1,200. Silver has also retreated from its intraday highs and will look to hold above $17 as the session winds down.