FUNDAMENTAL OVERVIEW Gold rallied strongly yesterday following several positive developments on the US-Iran front.
In fact, the bullish momentum got triggered by Trump pausing Project Freedom so that the US could work to finalise a deal with Iran
The pause was of course interpreted as another step towards a deal. Later in the European session, we got an Axios report saying that US and Iran were getting close to a one-page memo to end the war and that US officials were expecting Iran’s response to several key points in the next 48 hours. Tonight, we got reports that Iran was expected to deliver a response via Pakistani mediators today.
In the short-term, a resolution and the reopening of the Strait will likely support gold on falling oil prices and increased rate cut bets as inflation worries would ease. After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.