Zong Xiaoli: The Middle East situation has become deadlocked. What are the next moves for the US dollar and gold?

As gold experienced a sharp decline yesterday, many people were left confused. How is it that while the Middle East situation is intensifying, gold is not rising but falling? Could it be a reversal of the trend? This contradicts previous logic, as geopolitical tensions usually boost gold prices, but now the market is reacting differently. What’s going on?

In fact, this behavior can be seen as a shift from “buy the rumor, sell the fact.” Previously, increased Middle East tensions led to rising gold prices as the market grew more anxious. Now that the tensions have materialized, the market is actually fulfilling those expectations, causing many long positions to be closed out, which results in a drop in gold prices. However, this decline has been quite sharp, and it seems quite unusual, so I advise caution in the near future to avoid unexpected market shocks that could catch everyone off guard.

Regarding the US dollar, it is currently facing some resistance. After reaching 99.68 yesterday, it has struggled to go higher, indicating that breaking above 100 will be quite difficult. As the dollar index faces increasing pressure today, a slight pullback in the market is possible. Therefore, watch for a volatile decline in the dollar today, and a good strategy might be to consider shorting on rallies.

As for gold’s outlook, many expect it to rebound after yesterday’s sharp drop. However, I remain cautious. Market liquidity is becoming increasingly scarce, and if liquidity continues to dry up, there’s a risk of further downward pressure on gold as traders may push prices lower to extract liquidity. The Middle East situation has only just begun, and the real drama is still ahead. Its impact on gold is also just starting, and it’s becoming more complex, with both upward and downward movements possible. Be very careful. For trading strategies today, it’s safer to consider shorting on rallies.