Tensions between the US and Iran escalated at the start of the new week. On Sunday, the United States announced it had seized an Iranian cargo ship attempting to breach a blockade, prompting Iran to vow retaliation. Concurrently, the US President threatened that he might terminate the ceasefire with Iran unless a long-term agreement to end the war is reached by Wednesday.
Consequently, gold prices, which had rebounded recently on ceasefire expectations, turned lower this morning. The price of gold fell by as much as 1.9% during the session, dropping below $4,740 per ounce, erasing all of last week's gains before paring some losses. Meanwhile, oil and natural gas prices surged, US stock index futures declined, and the US Dollar Index rose by up to 0.3%, applying additional pressure on dollar-denominated gold.
The latest developments jeopardize the prospects for potential peace talks scheduled this week. The US President stated he sees an opportunity for a deal but also reiterated threats to destroy Iranian power plants and bridges. Tehran, however, indicated there is no "clear" prospect for productive negotiations. The failure in recent weeks to reach a lasting diplomatic agreement to end the war has heightened market volatility, and recent events again underscore the fragility of the ceasefire agreement set to expire on Tuesday.
The protracted conflict has triggered an unprecedented energy supply shock, exacerbating inflationary pressures and making it more likely that central banks will maintain interest rates or even hike them—a negative influence for non-yielding gold. Since the war broke out in late February, gold prices have fallen by approximately 10%.
The recent rebound in gold was largely built on market optimism regarding ceasefire negotiations rather than any substantial improvement in fundamentals. The fragility of this rebound is evident in two key aspects.
Firstly, the driving force was "expectation" rather than "fact." Last week's price increase stemmed from market bets on a de-escalation in the Middle East; once those expectations are dashed, prices can quickly reverse.
Secondly, the ceasefire agreement itself is extremely fragile. Core conflicts between the US and Iran remain unresolved. Iran has explicitly stated there is no "clear" prospect for productive talks and is prepared for a resumption of hostilities. The sustainability of the ceasefire, due to expire Tuesday, was already in doubt.
Official Iranian media explicitly denied participation in a second round of talks, directly shattering market hopes for peace. Furthermore, the US military's seizure of an Iranian vessel in the Gulf of Oman, accompanied by warning shots, and Iran's vow of retaliation have transformed geopolitical risk from a "potential concern" into an "established fact." Safe-haven flows have returned to the US dollar, pushing the Dollar Index higher and directly pressuring dollar-priced gold.
In the short term, geopolitical developments and expectations regarding Federal Reserve policy remain the core drivers for market trading. The expiration of the ceasefire agreement on April 22nd is the most critical near-term event. If the conflict continues but remains contained, markets may adapt to a "fight-and-talk" new normal. Gold prices could experience brief spikes followed by declines as bullish factors are exhausted. A sustained independent bullish trend for gold would likely only materialize if the conflict escalates uncontrollably, such as through a prolonged energy supply disruption.
The current gold market can be seen as a battlefield where bulls and bears are locked in a fierce tug-of-war. In the short term, bears hold a slight advantage due to dollar strength and fading hopes for interest rate cuts. However, over the medium to long term, bulls are supported by safe-haven demand and the trend of de-dollarization. Short-term traders need to remain highly vigilant, closely monitoring developments following the April 22nd ceasefire expiration. Key US retail sales data due on Tuesday will also be crucial for Federal Reserve rate cut expectations, potentially causing significant market volatility and elevating the risks of chasing trends. If the situation evolves into a "fight-and-talk" scenario as some institutions predict, gold prices will likely continue trading within a wide range until a new decisive force emerges to break the stalemate.