Precious metals are seeing a good start to the new week with the mood music helped by the US and Iran agreeing to a memorandum of understanding (MOU) deal. The final details are yet to be confirmed but they are likely to reflect the speculated terms from last week here.
That is seeing risk trades perk up to start the new week, with US futures also helped by the more positive showing from SpaceX’s debut on Friday.
But as oil prices drop back amid hopes of the Strait of Hormuz reopening, that is seeing gold price climb higher on hopes that the inflation outlook will improve. A less hawkish Fed and less hawkish outlook for major central banks in general are big factors in driving any recovery in gold. That especially as these were major headwinds for the precious metal in recent weeks.
Gold (XAU/USD) daily chart ($/oz)
That is helping to see gold move up by nearly 3% to $4,337 currently.
The good news from the chart is that we are seeing price pull off a solid rebound after a brief break below the March low last week. That is now starting to take the form of a double bottom pattern, which can instead work more favourably for gold buyers.
However, there is more work that needs to be done.
The bigger hurdle is still the 200-day moving average (blue line), seen at $4,450 at the moment. Gold buyers need to break back above that in order to reverse the more bearish bias established earlier this month. The break below the key technical level after the US jobs report was the first time that gold price action fell below both the key daily moving averages since October 2023.
As such, there is a necessity to undo that in order to solidify stronger conviction for a further rebound from hereon.
So, what’s next for gold then in this case?
It’s all on how oil prices move and in that lieu, it will depend on how much improvement there actually will be with regards to traffic flow in the Strait of Hormuz.
We are headed for a managed reopening of the waterway, with it set to pick up gradually over the next 30 days as Iran works to “clear off mines”. I have no doubt that there will be an increase in traffic flow. But to expect a full reopening and to meet US demands of returning to pre-war levels, I highly doubt that will be the case.
And if Iran is the one doing the reporting, expect the numbers to be fluffed with actual shipping data to paint a different picture.
The expected play-by-play suggests that we are now at Stage 3:
And if the reality fails to live up to the billing of the narrative put out by the US and Iran, how will markets respond when actual price pressure developments don’t match with the numbers on the screen?
Only time will tell.