It has been a turbulent few hours in markets, days and weeks even, and investors look to be taking a breather this morning after some historic moves, certainly in oil markets. Questions remain around the ceasefire agreement between the US and Iran (and Israel?). It’s not clear that all sides are on the same page regarding the details of the truce, while attacks have continued in the region and Iran is reportedly insisting that its permission is still required to pass the Strait. And what about fees and making money? That said, after weeks of uncertainty, markets have seized on peace with huge moves in crude especially notable. Yesterday’s fall ranked in the top five biggest intraday moves since 1990 in Brent, with only the Kuwait invasion in 1991 and pandemic moves greater than this historic move.
We are now closely watching ship flows through the Strait of Hormuz, where a significant pick-up in volume would weigh further on oil prices and further boost risk taking. It would also reverse the stagflationary investment trends witnessed in markets over the last month that include the stronger dollar and weaker stock markets. But, the 10-point plan delivered by Iran via Pakistan looks tough to agree upon, at least in the next two weeks. That was the path to an off-ramp but we think we should expect volatility the closer we get to the next deadline. Indeed, talks between the sides are set to go ahead in the next few days and headline havoc may again descend upon us. That could again mean we see Trump’s maximalist, escalate to de-escalate strategy which is the POTUS’ modus operandi. Wiser people than us appear to forget this!
Gold regains footing, but still down
Gold’s safe haven qualities against uncertainty in the world have been questioned in recent weeks.  That trade worked until just a few days after the Middle East conflict broke out, and then the correlation flipped. Since early March, the precious metal rose in response to hopes for a deal and declined when the fighting intensified. This was due to markets focusing on inflation concerns, rising yields and the dollar. The precious metal is non-interest bearing, and the rise in Treasury yields made it less attractive. Forced liquidation during the escalation in Middle East tensions also temporarily weakened its safe‑haven appeal with profit taking seen after the precious metal’s stellar run. Going forward, yields should typically move in a more orderly fashion, which should reduce their impact on bullion. That would allow a reversion to gold’s traditional haven role. . Central banks also stepped up gold purchases in February, rebounding after a lull in January, which should underpin long-term support.
Technically, the precious metal faces resistance at the midpoint of this year’s high to low at $4,848 and then the 50-day SMA at $4,932. Support is the 38.2% retracement level at $4,671 and the 100-day SMA at $4,650. We note that even during its largest fall in mid-March, gold held above the 200-day SMA, currently at $4,139, which is another bullish sign for the long run.