Spot gold experienced a dramatic reversal on Thursday. The price, which had initially dropped to a six-month low of $4023.85 per ounce amid Middle East tensions, staged a sharp recovery after news broke that U.S. President Donald Trump had abruptly canceled planned military strikes against Iran. The metal ultimately closed 3.4% higher at $4210.58 per ounce. In early Asian trading on Friday, spot gold extended gains, reaching a high of $4246.40 per ounce. This robust rebound not only erased Wednesday's entire losses but also rekindled market enthusiasm for gold as a safe-haven asset. Investors are now reassessing: with the sudden de-escalation of geopolitical risks, oil prices retreating, expectations for Federal Reserve interest rate cuts firming, and the U.S. dollar weakening, can gold sustain its rebound momentum within this complex interplay of geopolitics and macroeconomics? Is the bull market set to restart?

Geopolitical Drama: From the Brink of War to Hopes for Peace

Global financial markets on Thursday were entirely focused on the sharp de-escalation of Middle East tensions. Previously, Trump had threatened severe airstrikes on Iran and expressed a desire to "take" Iran's key oil export hub, Kharg Island, raising fears that escalating conflict would push oil prices higher and exacerbate global inflation. However, just hours before the strikes were set to commence, Trump announced the cancellation of the plans and released a major positive signal: the U.S. and Iran could sign a peace agreement as early as this weekend, potentially reopening shipping through the Strait of Hormuz.

According to Trump, the agreement has received approval from Iran's highest leadership and enjoys support from a broad range of regional countries including Israel, Saudi Arabia, the UAE, and Qatar. Iran's semi-official Fars News Agency also reported that Tehran is likely to approve the agreement's text, though a formal response is still pending. The conflict, which has lasted over three months, has resulted in thousands of casualties and severely disrupted global energy supply chains. If finalized, the deal would represent a significant diplomatic breakthrough, potentially easing Iran's control over the strait, ending port blockades, and paving the way for future nuclear negotiations.

TD Securities commodity strategist Ryan McKay noted that while similar "deal is near" reports have surfaced before without materializing, if this one proves true, it could significantly help lift gold prices from their lows. The market's reaction to this shift was swift: safe-haven demand quickly receded, and risk assets found favor.

Inflation Data and Fed Expectations: Macroeconomic Support for Gold

Despite the temporary easing of geopolitical risks, U.S. economic data provided additional support for gold. Wednesday's Consumer Price Index for May showed inflation rising at its fastest pace in three years, driven by a sharp jump in energy prices. Thursday's Producer Price Index for May also exceeded expectations, rising 1.1% month-on-month. These figures reminded investors that the transmission effects of the Middle East conflict on energy prices have not fully dissipated, and inflationary pressures persist.

Simultaneously, the CME FedWatch Tool indicated that the probability of a Fed rate hike in December fell from 72% to 59% following Trump's announcement, with some traders even pricing in a 55% chance. Investors are awaiting the first Federal Reserve meeting under new Chairman Warsh next week, widely expecting policymakers to hold rates steady. An increase in weekly jobless claims to 229,000, slightly above forecasts, further highlighted economic uncertainties.

In this environment, gold's "dual nature" – as both an inflation hedge and a safe-haven asset – was fully displayed. Even if the peace deal progresses, a full normalization of oil markets may take months, and the inflationary transmission effects will continue to influence the policy path, providing long-term support for gold prices.

Inter-Market Reactions: Oil Falls, Dollar Weakens, Stocks Rally

Gold's surge was not an isolated event but echoed by reactions across other global asset classes. Oil prices fell noticeably on Thursday, with Brent crude down 2.9% to $90.38 per barrel and U.S. crude down 2.6% to $87.71 per barrel. Expectations for a deal to reopen the Strait of Hormuz directly alleviated energy supply concerns. The U.S. Dollar Index fell 0.35% to 99.69, with major currencies like the euro strengthening. Juan Perez, Trading Director at Monex USA, analyzed that markets have grown accustomed to Trump's "escalate then de-escalate" negotiation style, and when peace signals emerge, capital quickly flows to risk assets, pressuring the dollar. Wall Street's three major indices closed sharply higher, with the Dow Jones up 1.86%, the S&P 500 up 1.75%, and the Nasdaq up 2.54%, led by chip stocks as the Philadelphia Semiconductor Index surged 7.9%. U.S. Treasury yields fell across the board, with the 10-year yield retreating to around 4.45%, reflecting a market reassessment of rate hike expectations.

These inter-market effects further amplified gold's gains: a weaker dollar directly benefits dollar-denominated gold, while the reactions in equities and bonds indicated a broad resurgence in risk appetite.

Gold Outlook: Short-Term Pullback Risks Amid Long-Term Support

In the short term, the current rebound in gold prices appears relatively full, and some profit-taking could lead to a technical pullback. Uncertainty remains regarding the deal's specifics – including the release of frozen Iranian assets, handling of nuclear issues, and the stance of hardliners within the Republican party. Should negotiations falter, geopolitical risk premiums could quickly return, providing renewed support for gold.

From a medium-to-long-term perspective, even if a peace deal is signed smoothly, the global economy still faces multiple challenges. The lingering effects of high energy prices, sticky inflation, uncertainty surrounding the Fed's policy path, and broader geopolitical risks will continue to support gold's appeal as a diversification asset.

Analysts widely view the $4200 level as a key psychological barrier. If the deal materializes quickly, oil prices continue to retreat, and gold can consolidate above this level alongside further dollar weakness, the next resistance levels to watch are near the May 28 low around $4366, followed by resistance near the 200-day moving average around $4446. Conversely, a renewed deterioration in Middle East tensions could subject gold to near-term pressure. Overall, however, in the current macroeconomic context, gold's downside appears limited, and its upside potential remains promising.