Gold hits near 3-week high on Iran ceasefire; near-term outlook bullish

Gold prices reached a near three-week high in Asian trading on Wednesday as the dollar weakened following US President Donald Trump's agreement to a two-week ceasefire with Iran, which successfully averted planned strikes on Iran's civilian infrastructure.

The June gold contract on COMEX was 2.2% up at $4,836.59 per ounce, and had hit $4,886 an ounce earlier in the session, its highest level since March 19.

The announcement is having a noticeable impact on commodities and stocks. Analysts observe that gold and equities are trending higher, as anticipated, while crude oil prices are falling. 

Specifically, S&P 500 futures saw an overnight gain of over 2%, contrasting sharply with West Texas Intermediate (WTI) crude oil futures, which dropped by 18%.

“Shifting sentiment in the gold market has pushed prices through key resistance,” Kitco.com said in a report. 

Geopolitical tensions ease

Overnight, the primary focus was on the reduction in Middle East tensions, attributed to significant diplomatic efforts.

Specifically, Pakistan intervened as a mediator, securing a two-week extension to the Tuesday deadline for Tehran to resume activity in the Strait of Hormuz.

Before the breakthrough, Trump, during a television interview, had stated, "I can't tell you, because right now we're in heated negotiations."

Trump subsequently announced on social media that he would agree to a suspension of bombing and attacks against Iran.

This cessation is conditional upon the waterway being opened completely and immediately.

This will be a double sided CEASEFIRE!

Iran has submitted a viable ten-point proposal, which Trump acknowledged, suggesting a long-term agreement is imminent.

Furthermore, Israel has also reportedly consented to the ceasefire.

Military action against Iran would be suspended for two weeks, according to the social media post by Trump, who stated that the US had already met its primary military goals.

Iran indicated a conditional willingness to reduce tensions, stating that safe passage through the Strait would be allowed during a ceasefire, provided that all hostilities ceased and vessels coordinated with Iranian authorities.

Meanwhile, silver prices also saw a significant jump, rising over 4% in the session to push above $76 an ounce.

Positive impact on gold

Meanwhile, analysts suggest that an end to the conflict could positively impact gold, potentially allowing the Federal Reserve to consider interest rate cuts later this year.

Gold prices experienced their worst monthly drop since the early 1980s last month, plummeting by over 11%, despite the heightened geopolitical risks stemming from the war with Iran. 

This decline suggested that gold failed to attract its typical safe-haven demand.

Analysts attributed the fall in gold prices to investors and central banks being compelled to sell the precious metal in order to satisfy liquidity requirements.

The prospect of rising inflation has unfortunately led to a dual impact: an upward adjustment of interest rate forecasts, which in turn elevates the opportunity cost of holding gold since it does not yield interest.

Despite the anticipated relief for supply-chain problems from the two-week ceasefire, some analysts caution that it remains premature to assess the full economic damage and the inflationary impact of elevated oil prices.

Technical outlook

“From a technical perspective, the near-term bias is mildly bullish as the gold price recovers above the mid-range of the recent consolidation,” Haresh Menghani, editor at FXStreet, said in a report. 

Meanwhile, the Moving Average Convergence Divergence (MACD) line has turned higher into positive territory with the histogram expanding, suggesting strengthening upside momentum after the earlier corrective phase.

A more cautious approach suggests waiting for the price to firmly break above the $4,920 confluence resistance, Menghani noted. 

Once this sustained strength is confirmed, the next upside targets become the psychological $5,000 level, followed by $5,141, which aligns with the 78.6% retracements, he added.