Gold News: Gold Market Reacts to Ceasefire, But Hawkish Warsh Limits Gold Breakout

Gold Stuck in the Middle as Warsh Era Begins

Spot Gold (XAUUSD) is up about 1% Wednesday and the reason isn’t what most people think. This isn’t a safe-haven rally. Gold is riding the same wave as stocks and risk assets because the ceasefire extension took liquidation pressure off the market. When traders stop being forced to sell gold to cover losses elsewhere, it goes up. That’s what’s happening right now.

The Ceasefire Extension Is Running the Show

Trump extended the ceasefire with Iran indefinitely to keep peace talks alive. Oil pulled back on the news and that gave gold room to breathe. Lower oil means less inflation pressure and less inflation pressure means traders start thinking the Fed has more flexibility. That’s the chain reaction and gold is the beneficiary today.

The problem is the ceasefire doesn’t look airtight. Iran seized two ships in the Strait of Hormuz on Wednesday. The U.S. Navy blockade is still in place. Iran calls that an act of war. This isn’t settled and the market knows it.

Warsh Is the Ceiling

Kevin Warsh told the Senate on Tuesday he made no promises to Trump about cutting rates. He pushed Fed independence and rejected White House pressure to ease. The market read that as hawkish and it was right to. Rate cut expectations are already thin and getting thinner. Fed funds futures are now pricing better than even odds that rates stay on hold all the way into late April next year. A strong dollar and high rates are a ceiling on Spot Gold (XAUUSD) no matter how much geopolitical risk is in the market.

The Way I See It

Gold has a year-end target of $5,900 in some models and that’s built on lower rates and a weaker dollar. Right now Warsh is making both of those assumptions harder to hold. The ceasefire extension gave gold a day. The rate story is what decides the trend.

Technically, gold’s trend indicators are giving off mixed signals. The main swing chart is down, but the minor trend indicator is up. The 200-day moving average is saying it’s in an uptrend but the 50-day moving average is saying not so fast, the short-term trend is down. Let’s look at it more closely.

The current price is about $4754.48. The 50-day moving average is providing the first layer of resistance at $4881.30, while the main swing top at $4891.54 is potential trigger point for a change in trend and an acceleration to the upside. The minor trend will change to down and momentum will shift if $4644.46 fails to hold as support.

Today, the line in the sand is a long-term 50% level at $4744.34. A sustained move over this level will indicate the presence of buyers. If it strengthens, it could eventually trigger a breakout over the 50-day MA and main swing chart at $4881.30 and $4891.54, respectively.

On the downside, momentum shifts if $4644.46 fails as support. This could extend the break to $4495.33 and $4401.84.

More Information in our Economic Calendar.