Gold (XAU/USD) climbed to a weekly high in Asian trading after the US and Iran announced an agreement on Sunday to end their conflict, due to take effect on Friday. President Donald Trump said the US would lift its naval blockade on Iranian ports and that the Strait of Hormuz would reopen once the deal is signed, with the route intended to be “permanently toll-free”. Iran said the 60-day negotiations hinge on three US commitments: lifting the blockade, ending the state of war and military operations, and releasing Iran’s frozen funds. Markets also adjusted rates expectations, with the CME FedWatch tool putting the probability of a Fed hike in December at nearly 64%, down from 69% last week.
Technically, gold remains in a corrective phase below the 100-day SMA and the Bollinger middle band, while the RSI is near 42. Resistance is seen around $4,415, then $4,685, with the 100-day SMA near $4,762. Support sits near $4,142, and a break could point to a deeper pullback. Separately, central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest annual purchase on record, according to the World Gold Council.
Geopolitical Shift and Interest Rate Dynamics
We see the new US-Iran peace accord as a major geopolitical shift that lessens the immediate need for gold as a safe-haven asset. However, the market’s initial positive reaction is focused on a more important driver for gold right now: interest rates. The deal reduces the risk of an oil-driven inflation spike, which in turn lowers the odds of future Federal Reserve rate hikes.
The market is now pricing in a 64% probability of a December rate hike, down from 69% just last week, according to the CME FedWatch tool. With the latest May CPI report showing core inflation stubbornly above 3%, any factor that can ease price pressures is significant. We believe this reduction in rate hike expectations is the primary reason for gold’s current strength.
This is especially critical given the importance of the Strait of Hormuz, through which about a quarter of the world’s daily oil supply passes. History, such as the oil shocks of the 1970s, shows how instability in this region directly translates to higher energy costs and global inflation. A stable peace deal could effectively cap oil prices, which have been a major concern for central banks throughout the past year.
Technical Outlook and Trading Strategy
Despite this positive fundamental shift, the technical picture for gold remains weak, with the price still below its 100-day moving average. This clash between a more bullish interest rate outlook and a bearish chart pattern suggests we should prepare for volatility. We expect to see choppy, two-way trading as the market digests these conflicting signals.
For our strategy, we are looking at the resistance near the 100-day simple moving average around $4,762 as a key level. We will consider using options to sell call spreads above this barrier. This position would allow us to profit if the current rally fades and the longer-term technical weakness resumes, as suggested by the charts.
On the other hand, we will watch the support level near the lower Bollinger band around $4,142. A firm break below this price would indicate that the bearish technicals are overpowering the fundamental news. If that occurs, we would look to buy put options to position for a larger move downward.
