Tensions soared in the Middle East after the elimination of a top Iranian military commander left stock market buyers profoundly spooked. Risk-off plays were extended to this week continuing to dictate price moves on Monday. The reason is simple – the promise of Iran to take revenge keeps investors in limbo, as the range of retaliatory measures is wide, right up to declaring war on the United States.

Gold quotes rose 1.6% on Monday to $1,579.55 per troy ounce. Gold is at its most expensive since April 2013. Long positions are now clear, while remaining appealing as the market tends to initially over-react to the threat of escalation. It was also reasonable to expect that strong momentum will make algos busy.

Iran has already said that it refuses to comply with one of the key points of the nuclear agreement, which is almost equivalent to withdrawing from it. This step will have long-term effects on defensive assets as it will increase the overall level of tension.

An interesting take on why Trump ordered the assassination of the military leader is that it is a formal pretext to reducing US presence in Iraq. The United States likewise left the Syrian conflict by eliminating Al-Baghdadi.

Iran’s most likely response directly to the attack is considered to be “low-intensity war” options – destabilizing oil production and supplies in the Middle East, attacks on oil tankers in the Persian Gulf and possibly killing or kidnapping individuals related to the United States. Oil quotes also extended the rally on Monday, anticipating supply disruptions from the Middle East. After rising 4% on Friday, Oil prices rose another 2% the following Monday. Further price hikes will likely be more cautious, as Iran’s response may be less aggressive than anticipated.

The rating of the Iranian government among the nation is low due to the tense economic situation. The government will likely take advantage of the growing external threat to increase the support of its citizens, which will obviously require a tough response to the killing.

Trump warned of a “possibly disproportionate retaliatory response” if Iran tries to attack American targets.

In contrast to the dynamics of last week, the greenback halted its growth, trading stably against other major currencies on Monday. Despite the intensive strengthening of gold prices, the bullish view remains valid as the conflict has not been exhausted yet.

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