(www.investorideas.com
Newswire) Gold Price Analysis article from Przemyslaw K. Radomski,
CFA.
After yesterday’s sharp moves, not much is going on today, so I’d
like to take this opportunity to step back and look at the whole arc
of this war. The deal that is (probably) being signed Friday gives
us a rare clean bookend, and what happened at the start of the war
tells you a great deal about what is likely to happen now at its
end.
Start with the single fact that frames everything. The war began on
February 28 with coordinated US and Israeli strikes on Iran. It shut
the Strait of Hormuz, the chokepoint for roughly a fifth of the
world’s oil. By any conventional reading, that is the most bullish
backdrop gold could ask for: a shooting war, a closed oil artery, a
dead head of state, retaliatory missiles across the Gulf. And here
is what gold, silver, and the miners actually did over the
three-plus months that followed.
From their early-March peaks (right after the first strike) to
yesterday’s close, gold fell about 20%, from $5,434.10 to $4,351.60.
Silver fell about 28%, from $97.30 to $70.18. The junior and
mid-tier miners, measured by the GDXJ, fell about 29%, from $157.49
to $111.88.
A war that closed Hormuz drove the classic safe havens down by a
fifth to nearly a third.
That is the entire story of this period in one line, and it is the
thing most investors still cannot believe. The reason is the chain I
have walked you through for months. The war did not reach gold
through the safe-haven door. It reached gold through the rate door.
Oil spiked, which lifted inflation, which killed the case for rate
cuts and built the case for hikes, which firmed the dollar and
raised real yields. Gold pays no yield, so when the cost of holding
it rises, it falls, war or no war. The metals spent this entire
conflict on the wrong side of that chain.
Now to the deal, and what it actually changes. I have put together a
before-and-after of the conflict so you can see the net effect at a
glance, who gained, who gave up, and where things stood in January
versus where they stand now.
A few things stand out from that summary. The Strait reopens, but
under Iranian management and with Iranian tolls, which is a
permanent structural cost on a fifth of the world’s oil rather than
a return to the frictionless, sub-$60 crude of January. Iran gets
sanctions relief and its oil revenue back, and keeps its enrichment
program as a subject for later talks.
The deal is between the US and Iran only, so the Lebanon piece,
which depends on Israel, is the part most likely to break. And the
one figure circulating loudest, the $300 billion, is not a US
payment to Iran. It is a conditional, Gulf-funded reconstruction
commitment that is not even confirmed in the text. I lay all of this
out because the headlines are noisy and the actual terms matter for
what comes next.
Lessons From The Front Lines
Here is the part that ties the start of the war to its end, and it
is the most important thing in this Gold Trading Alert.
When the war began, gold did exactly what the textbook said it
should. It spiked – the classic safe-haven reflex. And…
higher gold prices were never seen since that time.
With the war still raging, that spike gave way to a decline that ran
for months. The geopolitical event moved the price for exactly one
day. The interest-rate-channel and technical picture moved it for a
quarter. The shock was temporary. The trend was durable.
Look at what is happening now, at the other end of the war. The
peace deal broke over the weekend, and gold futures did the same
thing in reverse. They spiked, popping on Sunday night and into
Monday on the relief. And look at today. Gold is not extending that
move. It is up only modestly. Silver is up a bit more, but nothing
to write home about, either. The one-day rally on the single most
de-escalatory headline of the entire war has already stopped moving
higher (no new intraday highs), on the second day, the same way the
one-day spike at the war’s start gave way almost immediately.
That is not a coincidence. It is the same lesson twice.
Geopolitical events, whether the war starting or the war ending, move this market
briefly and then let go of it. What holds the price is the technical
situation and the monetary backdrop, and neither of those just
changed in gold’s favor.
This leads to a conclusion that I think most of the market is
missing. The peace being signed Friday is, by every account, close
to the best case. A complete deal, the Strait reopening, the war
over. The market has spent the previous session and today’s
pre-market trading pricing exactly that. And when the best case is
fully priced, the surprises from there can only run one way.
For gold to fall further on the deal, something even more peaceful
than “complete peace” would have to arrive, and there is no such
thing. But the list of things that could disappoint is long,
starting with the following:
– the signing could slip on Friday the way every prior deadline has
slipped
– Israel could reignite Lebanon
– Iran could slow-walk the thirty days it has to actually reopen the
Strait
Or, most simply, nothing new could happen at all. And if nothing
happens, the market’s attention turns back to what it was ignoring,
a 4.2% inflation rate and a Federal Reserve that has not eased.
And the timing of what comes next could not be sharper, because the
catalyst is no longer geopolitical. With the war (possibly)
clearing, the entire question for gold comes down to the Federal
Reserve, and Warsh chairs his first meeting tomorrow. The rate
decision itself is not the event, a hold is all but certain. The
event is the tone and the projections, and there is a specific
asymmetry worth understanding. The market has come to expect Warsh
to lean
dovish, helped along by the deal and falling oil. When expectations are
set that high, even a neutral, data-dependent message can read as
hawkish by comparison, and
hawkish
is what pressures the metals. So, the bar for Warsh to satisfy a
market positioned for dovishness is high, and the risk is that he
disappoints it.
Put the whole picture together and it resolves cleanly. A war that
should have launched gold instead saw it fall 20% while the war
raged, because the real driver was rates, not fear. That same war is
now ending, and the relief rally is already fading on its second
day, exactly as the opening spike faded on its second day. The peace
is priced, and not even signed, so the surprises skew lower. And the
catalyst that actually moves this market, the Fed, sits one day away
with the burden of proof on the dovish case. I think the short-term
bounce is a bounce, not a turn, and that once these geopolitical
events finish moving the price the way they always do, briefly, the
market is likely to go where the technical and monetary situation
points it. That direction has been down for three months, and
nothing in this deal has changed it.
Crude, Dollar, and Gold at Critical Junctures
The full version of today’s analysis includes analysis of multiple
markets, including silver, mining stocks, copper along with key
trading details, but in today’s free article, I’m going to provide
my comments on three markets” crude oil, USD Index, and gold.
Crude oil touched the lower border of the trend channel. A confirmed
breakdown below it would imply that a broad top, and not a
consolidation, is in. So far we haven’t seen it and the jury remains
out. Similarly to the signature on the peace deal.
Please note that crude oil topped exactly at its
triangle-vertex-based reversal – please remember that for the
upcoming times when you read that technicals no longer work on the
markets because we are in “different times”. They were working and
they will be working in the future as they are based on investors’
emotions – and those won’t change regardless of geopolitics or
economic growth.
The USD Index could be verifying its breakdown below the rising
support line, or it could be on a verge of invalidating it. It seems
that we’ll know after tomorrow’s Fed’s press conference.
My yesterday’s comments on the above chart remain up-to-date:
The USD Index declined strongly, but… If we zoom out, it turns out
that it’s not that much of a game-changer.
The USD Index has only reached the first of the classic Fibonacci
retracement support levels – the 38.2% one – based on the May-June
rally. This means that even the short-term uptrend remains intact.
And even if the USD moves lower by about 0.3 from here, there’s the
50% retracement there, the late-May lows, and the rising support
line based on the January and April lows.
During Friday’s subscriber-exclusive webinar, I spoke about the
possible cup-and-handle formation in the USD Index. The March-June
cup remains intact. The current move down might simply be the
“handle” in the making.
Gold is pretty much at the lower border of its target area. This
might be the top, or we might move slightly higher before the rally
reverses.
In the June 9 Gold Trading Alert, I featured a downside target for
gold at $4,000 – $4,200. It bottomed at $4,046.20. However, what
started now is likely a counter-trend rebound, not the start of a
new big rally.
Please note that gold futures did NOT manage to move to new intraday
highs today. The link to the first session after the daily rally
back in March remains fully intact.
The outlook remains bearish and it seems that the next big move will
be to the downside.
Thank you for reading today’s analysis – I appreciate that you took
the time to dig deeper and that you read the entire piece. If you’d
like to get more (and extra details not available to 99% investors),
I invite you to stay updated with our free analyses -
sign up for our free gold newsletter now.
Sincerely,
Przemyslaw K. Radomski, CFA
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