The Gold show

In the current environment, every day seems to offer a new catalyst for the gold price. The gold price is higher by $18 on Tuesday morning, and is trading at $3018, as tensions in the Middle East impact on the commodity market.

Oil price upside could be limited

Brent crude oil is also higher by 0.8% so far on Tuesday, after military strikes re- started in Gaza. It’s worth noting that events between Israel and Hamas have typically only had a short-term impact on the oil price, and we do not expect this to be different now. While geopolitical tensions can put upward pressure on the oil price, Israel and Gaza are not oil producing nations, so the impact tends to be short lived. There are plenty of reasons why the upside in the oil price could be short lived. The economic backdrop is uncertain. There are concerns about a recession in the US, China’s growth has been slow to get going in recent years, and fears are starting to mount about the Indonesian economy, which caused its stock market to fall by more than 7% on Tuesday, causing a circuit breaker to kick in and halt trading. Added to this, the oil supply is also plentiful, which may limit the upside. There are reports of some option activity with a strike price of $100 per barrel with a June expiry, however, this is a big ask for the oil price, in our view.

The gold price is not hindered by these concerns, and growth fears are fuelling the price surge of the yellow metal. In uncertain times, central banks and individuals demand gold, while inflation concerns emanating from President Trump’s tariffs and trade war are also boosting the price of gold. Life above $3000 per ounce could be the norm for the gold price in 2025, it is already higher by 15% YTD, easily outpacing gains for global equities.

Gold Miners on the up

Gold miners have generally not followed the gold price too closely so far this year. Miners tend to follow the gold price but with a lag, however, now that the price of gold is comfortably above $3000 per ounce, it could be time for the gold miners to play catch up. Endeavour Mining, one of the biggest miners on the FTSE 100, has risen by 7% in the past week, at the same time as the gold price rose above $3000 per ounce. However, there could be further to go, it is still some way from the 2-year high reached in October.

European stocks could get boost from German defence spending

Defence stocks are in focus today. The German government will vote to unlock its debt rules to boost spending on defence later on Tuesday. The expectation is that the extra spending will favour European firms. Interestingly, defence firms are lagging in the German index on Tuesday, however, they have had a tremendous run in recent week.

In France, the Cac is being led higher by luxury firms, as the selling pressure on the LVMH and L’Oreal takes a breather. While momentum remains to the downside for these firms, LVMH’s share price is down more than 15% in the past month, which is excessive in our view and a pullback could be in store. In the UK, Next and Intercontinental Hotels Group are leading the FTSE 100 higher, as consumer stocks catch a break.

US stocks could run into resistance road block

US stock futures are lower so far this morning. There is no driver of this divergence, although investors may be exercising some caution ahead of the Fed meeting on Wednesday. US stocks managed to eke out a gain on Monday, although there were further losses for the magnificent 7 tech stocks. Nvidia lost 1.7% and Tesla fell by nearly 5%. Nvidia is higher in the pre-market, and although Tesla is lower its losses are mild so far on Tuesday.

The S&P500 is coming up against some key resistance at 5,700, which may limit further upside for the main US blue chip index until after tomorrow’s FOMC decision. We don’t expect the Fed to change policy on Wednesday; but the updated economic forecasts and dot plot will be crucial for the direction of asset prices later this week.