Gold (XAUUSD) Price Forecast: Gold Rally Builds as Iran Deal Cuts Rate Hike Bets

Spot Gold Surges as Iran Peace Deal Crushes Crude

Spot Gold (XAUUSD) gapped to a near one-week high Monday, hitting $4,347.54 by 12:52 GMT, up $128.98 or 3.06%. The U.S. and Iran reached a preliminary peace framework and crude collapsed on the news. This is the gold-specific chain reaction running in real time. Lower crude pulls inflation expectations down, rate hike bets come off, and Spot Gold (XAUUSD) runs. Not because of safe-haven demand. Because the rate math changed.

Iran Deal Took Crude Off the Table

U.S. and Iranian officials announced a framework agreement aimed at ending the conflict and reopening the Strait of Hormuz. Pakistan’s Prime Minister Sharif said the formal signing is expected in Switzerland on Friday. June WTI crude oil dropped roughly 5% on the session. Spot Brent crude oil fell toward $82.90 a barrel.

I’ve seen this before. Crude spikes for weeks on war risk, the entire inflation narrative gets built around it, and then one headline takes it all out. That is what happened Monday. Months of elevated crude keeping the Fed pinned hawkish got repriced in a single session. CME FedWatch data shows December rate hike expectations dropped to roughly 53% from 69% just one week ago. Fed funds futures still imply better than 98% odds the Fed holds at 3.50% to 3.75% this week but the forward curve is what moved and that is what Spot Gold (XAUUSD) is trading.

The bond market confirmed it. The 10-Year U.S. Treasury yield fell more than 2 basis points to 4.459%. The 2-Year U.S. Treasury yield dropped over 3 basis points to 4.054%. The 30-Year U.S. Treasury yield edged lower to 4.958%. All three moving lower on the same session tells you the repricing is broad, not just the short end adjusting. Spot Gold (XAUUSD) does not fight falling yields. It rides them.

U.S. Dollar Index Weakness Stacked on Top

The U.S. Dollar Index hovered near a 10-day low as the peace framework pulled safe-haven flows out of the dollar. The euro climbed to around $1.1610. The British pound traded near $1.3423. The Japanese yen held relatively stable near 160. A weaker U.S. Dollar Index makes Spot Gold (XAUUSD) cheaper for every buyer outside the United States and that bid was visible all session.

Currency markets are cautiously optimistic but the formal agreement has not been signed and Iran’s nuclear program is still on the table. Those are real risks sitting underneath this move. If the deal falls apart before Friday, crude reverses higher and everything that drove Monday’s rally runs the other direction.

Central Banks Set the Next Test

The Fed, Bank of Japan, Bank of England, and Reserve Bank of Australia all announce policy decisions this week. The Fed is the one Spot Gold (XAUUSD) cares about. Fed Chair Kevin Warsh’s tone on inflation after a 5% crude drop is what the market is waiting for. If he sounds even slightly less hawkish, traders will pull more rate expectations off the table and that gives Spot Gold (XAUUSD) another leg higher.

Policy uncertainty and central bank reserve diversification are still working in the background as medium-term support. But near-term this is a rate trade. My read on this is that the bullish setup holds as long as the peace framework stays intact and rate hike expectations keep coming down. One hawkish surprise from Warsh or a collapse in the Iran talks and this reverses fast. The level the charts are pointing at and what the market needs to hold is all in the technical section below.

Daily Spot Gold (XAUUSD) Technical Analysis

In a rare move, Spot Gold gapped higher on Monday. The move turned $4023.87 into a new main bottom. Despite today’s strength, the main trend is still down with the market still facing headwinds at the 200-day moving average, the Bull/Bear line, a long-term Fibonacci level and the 50-day moving average.

After today’s gap opening, the rally stalled at $4347.58, which suggests traders may be questioning valuation. One thing that was missing for months were traders who were willing to chase higher prices or aggressively take out offers.

At today’s intraday high of $4347.58, the market is asking traders to aggressively buy a new high, more than $300 higher than it was just two days ago. So essentially, the “chase” will determine whether the market moves higher quickly. At its current price, it is well below the major resistance so technically, it has room to run.

The other way to play gold if you think taking out offers is too risky, is to wait for a 50% to 61.8% correction. The current short-term range is $4023.87 to $4347.58. Its 50% to 61.8% retracement zone is $4185.72 to $4147.53.

Keep in mind that both trading strategies carry counter-trend risks. But if you believe the first leg up from a major low is just short-covering then waiting for the pullback may be your best strategy.

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