Where we are: Gold (COMEX) is currently trading at 4755.8, up 55.3 points or 1.18% on the day, having traded in a range of 4694.0 to 4763.4. This represents a two-week high for the precious metal. Gold is currently extending gains seen in the Asian and European sessions, buoyed by hopes of a US-Iran peace deal.
What’s driving it: The primary driver appears to be the potential for a US-Iran peace agreement, with reports suggesting a memorandum of understanding has been proposed to formally end the conflict, which has seen oil prices tumble and inflation worries ease, supporting gold’s rise above $4,700. The drop in oil prices, driven by peace hopes, is a major factor, easing inflationary pressures and reducing expectations of continued restrictive central bank policies. While real yields are a headwind, rising 1.0bp to 1.96% as of yesterday, the risk-on sentiment driven by potential peace, coupled with a softer DXY at 97.69, is currently outweighing this.
- The Reuters wire at 01:23 noted that gold climbed to a two-week high “as US-Iran peace hopes push oil lower”.
- The 10Y breakeven inflation rate fell 5.0bp yesterday, potentially signaling reduced inflationary concerns.
- Despite Goolsbee’s warning about sticky inflation, the market is pricing in lower inflation expectations and reacting positively to the possibility of geopolitical stability.
NY session focus: The key event for the NY session will be the Unemployment Claims data at 08:30 ET; a significantly higher-than-expected print (forecast 205K vs. previous 189K) could potentially trigger a flight to safety, further boosting gold. Watch for a potential breakout above intraday highs of 4763.4. A failure to sustain gains above 4750 could see a retracement towards 4725-4730. The current trade is clearly long gold on geopolitical de-escalation. The risk for this trade is a hawkish surprise from central bank speakers, or a reversal in peace talks. The pain trade is a sudden resurgence of inflation fears and a corresponding spike in real yields, sending Gold sharply lower.