Despite a peace agreement between the US and Iran, which should have eased safe-haven demand and pressured gold prices, the precious metal has instead climbed for a third consecutive day to $4319, reaching its highest level since June 9th. This counterintuitive move is not due to a failure of traditional safe-haven logic but is driven by a confluence of new market forces, including a weaker US dollar, easing inflation fears from falling oil prices, and institutional capital flows. The upcoming Federal Reserve interest rate decision will ultimately determine whether this gold rally can be sustained.

A formal peace accord has been reached, and the Strait of Hormuz is set to reopen. Conventional financial logic suggests that easing geopolitical tensions and a move towards stability should directly reduce market demand for safe-haven assets, leading to a decline in gold prices. However, the current market action has completely defied this norm. Gold prices surged by hundreds of points around mid-June, initiating a strong upward trend, leaving many investors puzzled: with geopolitical risks receding, why is gold not falling but rising?

The Paradox of Peace as a Catalyst

The surprise felt by many investors regarding this gold price movement is precisely indicative of a keen market observation. The core driver of this sharp rally stems from a counterintuitive, reverse market logic. In traditional trading wisdom, gold, with its safe-haven properties, typically rallies when war breaks out or geopolitical tensions escalate—this is the classic pricing logic for gold.

This time, however, the market dynamic has completely reversed. The US-Iran peace deal and the cooling of geopolitical risks have not suppressed gold prices but have instead become the central catalyst for this strong rally. This is not an anomalous market fluctuation but the result of a complete chain of macroeconomic reactions. The surface-level news of geopolitical peace has, through a cascade of market variables, ultimately created a fundamental support base that is bullish for gold.

The Chain Reaction: Oil, Inflation, and Fed Expectations

1. Falling Oil Prices Ease Inflation Fears

The implementation of the peace agreement has completely removed the risk of a Middle Eastern crude oil supply disruption, leading to a significant correction and decline in international oil prices. As a core barometer of global inflation, the drop in energy prices directly alleviates market concerns about imported inflation.

Prior to this, tensions in the Middle East had pushed energy prices persistently higher, directly exacerbating inflationary pressures in the US and cementing market expectations of "persistent high inflation." This, in turn, pressured the Federal Reserve to maintain a tight monetary policy, which was a core factor suppressing gold prices. The oil price decline triggered by the peace deal has fundamentally reversed this landscape.

2. Cooling Rate Hike Expectations Prompt Major Policy Reassessment

Over the past period, driven by rising energy prices and climbing inflation pressure, the market widely anticipated that new Fed Chair Kevin Warsh would signal a hawkish monetary policy stance at this week's meeting. Market-implied probabilities for a December rate hike had approached 70%, with tightening expectations continuously heating up.

However, with the sharp fall in oil prices, the energy-driven inflation pressure has rapidly dissipated, completely reversing the market's assessment of the US inflation trajectory. Monetary policy expectations have adjusted swiftly in response. The market-implied probability of a Fed rate hike this year has now dropped significantly from near 70% to below 40%, while expectations for rate cuts have simultaneously gained traction. The persistent tightening policy expectations that were suppressing gold are gradually loosening.

3. Weaker Dollar Eases Valuation Pressure on Gold

The cooling of Fed rate hike expectations has directly led to a decline in both the US dollar index and Treasury yields. As a non-yielding asset, gold faces significant carrying cost pressure in a high-interest-rate, strong-dollar environment, which was a core reason for its persistent weakness over the past two to three months.

The current weakening of the dollar and the fall in Treasury yields have completely removed the long-term suppression of high rates on gold. Simultaneously, it has substantially reduced the holding cost of gold for global non-US investors. Market demand for allocating to gold has rebounded quickly, providing solid fundamental support for the price increase.

Short Covering Amplifies the Gains

Beyond the multiple macro-fundamental tailwinds, the sharpness of this gold rally also stems from technical and momentum-driven fund flows, with short-covering activity further amplifying the upward move. Reviewing the prior price action, gold had fallen consistently from its high near $5600 at the start of the year over the past two to three months, accumulating a drop of roughly 20% to a low around $4100.

During this sustained downtrend, numerous hedge funds established concentrated short positions at lower levels, betting on a continuation of the downward trend. The current bottoming and sustained climb in gold prices have directly triggered stop-loss levels for these short positions. A large number of shorts have been forced to buy to cover their positions, injecting massive new buying volume into the market and further propelling prices higher. This has created a dual upward force of "fundamental利好 + technical/momentum fund flows."

The Core Nature of This Rally

In summary, this gold price increase is not based on traditional geopolitical safe-haven logic but represents a corrective rebound in the market's reaction to the Federal Reserve's high-interest-rate policy. The news of geopolitical peace unexpectedly removed a core rationale for the Fed to continue hiking rates, indirectly alleviating the valuation pressure that high rates exert on gold assets.

The complete market transmission logic is clear and cascading: US-Iran peace deal reached → crude oil supply risk removed, oil prices fall → market inflation expectations cool → probability of Fed rate hikes drops sharply, rate cut expectations rise → US dollar and Treasury yields decline → suppression on gold is lifted, price rebounds. This multi-step transmission has ultimately produced this counterintuitive market behavior.

Key Tests Ahead: The Fed Decision and Technical Levels

This Wednesday, the Federal Reserve, under new Chair Kevin Warsh, will announce its latest interest rate decision. This will be the pivotal moment determining whether this gold rebound can extend. If the meeting hints at the possibility of a rate cut this year, the bullish logic for gold will be further reinforced, and prices could continue their upward trajectory. If the Fed remains vigilant on inflation risks and signals a more hawkish stance, this rally will likely stall, and prices may retreat quickly. Therefore, the policy wording and future monetary policy path guidance from the meeting are the short-term focal points for investors.

From a technical perspective, the short-term price action for gold is constrained by clear key levels. The current core resistance above lies at $4360, with further resistance at $4420 upon a breakout. Core support below is at $4250, with deeper support at $4180. If gold breaks above the resistance zone in the short term, it will open the door for further gains. If it breaks below the support zone, this rebound may be declared over. The outcome at these key levels will directly guide the short-term directional bias.

Potential Market Risks

Although this gold rally possesses clear macro and technical drivers, multiple uncertainties remain in the market, and risk factors cannot be ignored. On one hand, the actual implementation of the US-Iran peace deal may fall short of expectations, and the pace of Middle Eastern crude supply restoration is variable, potentially causing oil price volatility that could disrupt inflation expectations. On the other hand, if the Fed meeting delivers unexpectedly hawkish signals, tightening monetary policy expectations once again, gold prices could quickly give back the gains from this rally.

Historical price action over recent months, characterized by volatile declines, has fully demonstrated the current market's high sensitivity to changes in Fed policy expectations. For investors, it is crucial not to blindly chase short-term gains. Trading strategies should be dynamically adjusted based on macro data, policy developments, and geopolitical event progress. Strictly controlling position sizes and setting reasonable profit-taking and stop-loss levels are core to managing sudden market volatility and mitigating trading risks.

Overall, this market move where geopolitical de-escalation has pushed gold higher clearly demonstrates the logic of financial markets operating in reverse. The peace deal triggered lower oil prices, cooling inflation, and fading rate hike expectations, which, combined with the momentum boost from short covering, collectively fueled the gold rebound. The upcoming Federal Reserve interest rate decision will serve as the core watershed for the short-term trend.