Gold (XAU/USD) climbed to a weekly high in Asian trading on Monday, rebounding after the US and Iran agreed on Sunday to end their conflict, with the accord set to take effect on Friday. The US said it would lift its naval blockade on Iranian ports and that the Strait of Hormuz would reopen once the agreement is signed, while the UK, France, Germany and Italy said they were prepared to lift sanctions on Iran in response to steps on its nuclear programme. Iran’s deputy foreign minister said the 60-day negotiations would hinge on three commitments: ending the blockade, ending military operations, and releasing Iran’s frozen funds.
Rate expectations shifted as markets priced nearly a 64% probability of a Federal Reserve hike in December, down from 69% last week, according to CME FedWatch. On the chart, XAU/USD remained below the 100-day SMA and the Bollinger middle band, with the RSI near 42. Resistance sits near $4,415, then $4,685 and $4,762, while support is around $4,142.
Geopolitical Developments and Their Impact on Gold Markets
The new peace agreement between the United States and Iran is creating a complex situation for gold. While reduced geopolitical risk is typically bad for gold, the price is rising because this deal lowers the chance of an oil-price shock. This lessens inflation fears, making it less likely the Federal Reserve will raise interest rates later this year.
We’ve already seen the market react, with WTI crude futures falling over 4% to below $75 a barrel following the news of the Strait of Hormuz reopening. This supports the view that inflation will cool, especially after the last CPI report for May showed a modest 2.8% year-over-year increase. As a result, expectations for a December rate hike have softened, providing a temporary lift for non-yielding assets like gold.
Technical Outlook and Trading Strategies
Despite this fundamental boost, we view the current rally with caution, as the technical picture remains bearish. Gold is trading well below its 100-day moving average, suggesting the broader trend is still downward. We see the resistance at the Bollinger middle band near $4,415 as a key level to watch for a potential “sell the rally” opportunity.
For derivative traders, this suggests selling call options with a strike price above the $4,415 resistance could be a viable strategy to collect premium. Alternatively, for those anticipating the downtrend to resume, buying put options with a strike below the $4,142 support level could be a prudent move. The CBOE Gold Volatility Index (GVZ) has also dipped to a three-week low, indicating the market expects less dramatic price swings in the near term.
Historically, we saw a similar pattern surrounding the 2015 JCPOA nuclear deal, where an initial reaction to the geopolitical news was eventually overtaken by the dominant macroeconomic trend. Therefore, we are not treating this as a new bull run but rather as a corrective bounce within a larger downtrend. Our strategy is to watch for this rally to lose steam as it approaches the heavy technical resistance overhead.
