An evaluation of on the daily chart indicates that, as mediators attempt to negotiate an extension of the temporary ceasefire and the reopening of the Strait of Hormuz, market uncertainty persists.
Gold futures, stuck in a range after a bounce from the tested lows at $4,626 on April 13, are showing weakness. Despite growing hopes for an extension of the temporary ceasefire, oil prices remain below $100 a barrel, even as they inch higher. This could extend bearish pressure on gold if the de-escalation efforts fail this time.
Elsewhere, China’s economy grew more than anticipated in the first quarter, aided by strong export demand, while domestic consumption also picked up after years of underperformance. grew 5% year-on-year, at the upper end of Beijing’s annual target.
The print helped spur some optimism over oil demand in the world’s largest crude importer, although a host of other readings showed that economic momentum slowed towards the end of the first quarter. The outlook for China’s economy also remains uncertain in the face of the Iran war, especially given that Beijing imports a significant portion of its crude from Tehran.
I find that China could try to influence both the U.S. and Iran to resolve the major issue of the Strait passage, ensuring the regular inflow of oil and other supplies to defend its economy from elevated recessionary fears since the advent of this war.
Undoubtedly, this war between the U.S. and Iran is having a denting impact on the global economy, and if it continues for some more time, it could compel other nations, such as Russia, the UK, Spain, and other European countries, to step forward and increase pressure on U.S. President Donald Trump to resolve this through diplomatic means at the earliest.
Still, signs of friction remain, most notably over an ongoing U.S. naval blockade of Iranian ports. A top military commander in Iran has warned Washington not to continue the blockade, which U.S. Central Command has claimed has not been evaded by any Iranian-linked commercial ships or oil tankers.
Other reports suggest that some vessels have passed through the Strait of Hormuz this week. Reuters also reported that Iran could consider allowing ships to sail freely through the Omani side of the strait without the risk of attack, as part of a peace deal.
Against this backdrop, oil prices rose marginally, sitting below the $100 threshold but still well above pre-war levels, as traders gauge the impact of a prolonged closure of the Strait of Hormuz. However, for the week, crude was nursing steep losses, with any upside largely capped by hopes of easing U.S.-Iran tensions.
On Thursday, gold futures crept higher amid persistent weakness in the dollar. However, are now showing a strong reversal after testing the day’s low at $97.627, while are trading with a 3.24% gain at $98. This could weigh on gold futures, causing them to shed some gains into the weekly close, as the venue and date of this meeting are still uncertain.
Secondly, the Bank of England is facing difficult decisions on interest rates, as rising energy costs from the Middle East conflict threaten to push up prices, Governor Andrew Bailey told the BBC.
I conclude that if gold futures experience a breakdown below the immediate support at the 50 EMA ($4,797), the slide could turn steeper.
***
Disclaimer: Readers are advised to take any position in gold at their own risk, as this analysis is based only on observations.
Leave a comment