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Gold Price Surges Amidst Easing US-Iran Tensions
On Friday, gold (XAU/USD) prices saw a significant uptick, surpassing the $4,850 mark and increasing by over 1.50%. This rise comes as tensions in the US-Iran conflict appear to be easing, especially following Iran’s decision to reopen the Strait of Hormuz, resulting in a global alleviation of inflationary pressures. Concurrently, energy prices plummeted, with West Texas Intermediate (WTI) crude oil trading down more than 9%, and the US Dollar dropped to a seven-week low.
Bullion Climbs as Oil Prices Fall
Market sentiment has become increasingly focused on developments in the Middle East, with investors reacting positively to news indicating a potential resolution to the conflict. Iranian Foreign Minister Abbas Araghchi announced via X that the Strait of Hormuz would remain open to commercial vessels throughout a 10-day ceasefire with Israel and Lebanon, as reported by Reuters. In response, former US President Donald Trump noted on his social media: "IRAN HAS JUST ANNOUNCED THAT THE STRAIT OF IRAN IS FULLY OPEN AND READY FOR PASSAGE."
Despite these optimistic headlines, a senior official in Iran told Reuters that substantial discrepancies still exist between Tehran and Washington, particularly surrounding nuclear discussions. They cautioned that the continued openness of the Strait of Hormuz would hinge on the conditions set forth by an Iran-US ceasefire agreement.
Following this news, WTI crude oil extended its losses, dropping over 9.50% to $81.74 per barrel. The decline in oil prices has prompted traders to anticipate a potential easing from the Federal Reserve later this year, estimating a possibility of 14 basis points of rate cuts based on data from LSEG Workspace.
Diverging Fed Perspectives
Fed Governor Christopher Waller expressed that he would favour maintaining current interest rates if the ongoing war leads to heightened inflation and labour market weaknesses. In contrast, San Francisco Fed President Mary Daly suggested a dovish stance, asserting that the current policy is "slightly restrictive," with a neutral rate around 3%. She indicated a willingness to keep rates unchanged but noted that a spike in inflation could prompt her to support a rate hike. Conversely, if the Iran conflict resolves rapidly, discussions of rate cuts may become viable.
This diverging viewpoint comes as the US Dollar Index (DXY), measuring the currency against a selection of others, fell to a seven-week low, declining by 0.17% to 98.01. The Dollar’s losses were exacerbated by optimism surrounding the situation in Iran. Moreover, the yield on 10-year US Treasury bonds fell to its lowest since mid-March, declining by 7 basis points to 4.246%.
Gold’s Technical Overview
Gold has encountered significant resistance despite rebounding from daily lows of $4,767; it struggled to surpass the 50-day Simple Moving Average (SMA) at $4,899. Currently, XAU/USD has retreated below the April 8 high of $4,857, raising the possibility of a pullback.
The momentum remains favourable, as the Relative Strength Index (RSI) shows positive movement, indicating potential for further gains. For a bullish trend to re-emerge, gold must break past the $4,900 barrier, followed by targets of $4,950 and the psychological $5,000 point. If prices dip below $4,750, attention may shift towards the 100-day SMA at $4,699, with further support located at the 20-day SMA around $4,549.
Gold: A Historical Perspective
Gold has long been considered a vital asset, historically serving as a store of value and a medium for exchange. Today, in addition to its aesthetic appeal in jewellery, gold is viewed as a safe-haven asset, particularly during unstable periods. It is often employed as a hedge against inflation and depreciating currencies, given its independence from government issuance.
Central banks remain the largest holders of gold, often turning to this precious metal to stabilise their currencies during turbulent times. Recent statistics from the World Gold Council reveal that central banks acquired 1,136 tonnes of gold—valued at approximately $70 billion—in 2022, marking the highest annual purchase on record. Countries like China, India, and Turkey are notably expanding their gold reserves.
Gold’s price movements are influenced by various factors, primarily its inverse relationship with the US Dollar and US Treasuries. As a non-yielding asset, gold tends to perform well when interest rates are low, while rising rates can negatively impact its value. Furthermore, geopolitical tensions or fears of recession often lead to price surges, reinforcing its status as a safe haven.
In conclusion, as the situation in the Middle East evolves, market participants are closely observing these developments for further implications on gold prices and broader economic sentiments.
