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Last weekend, it started conflict in Iran that spread rapidly through the Middle East. Initially, there was a sentiment that gold would act as a safe haven again. However, that turned out differently.
Although the gold price the week started with an increase, and a correction soon followed. For now, the combination of rising oil prices and strong economic data from the United States means that investors expect fewer interest rate cuts from the US central bank.
The result is that the US dollar in particular is gaining ground, while gold has lost a few percent since the beginning of the conflict. Indeed, rising interest rates are, in theory, negative for gold. After all, US government bonds pay interest, while the precious metal itself generates no income. As a result, it becomes relatively less attractive when interest rates rise.
While that's the theory, practice has shown something different since 2022. From that moment on, interest rates rose explosively in an attempt to curb the wave of inflation, but at the same time, the price of gold also rose sharply.
The increase in geopolitical uncertainty since the war in Ukraine and growing concerns about the increasing global mountain of government debt meant that gold continued to rise, despite sharply rising interest rates.
Rising interest rates has therefore not been a reason to ignore gold in recent years. Quite the contrary, in fact. In that regard, it remains to be seen whether this week's developments are the start of a new trend in which the US dollar is structurally gaining strength against gold.
Although it does not represent strong price action for gold, it is still far too early to draw conclusions about this. First of all, because we are dealing with a war situation, which remains to be seen how long it will last.
No one can say anything about that with certainty at the moment. The most likely scenario, however, seems that it is a war of a few weeks will be. In that scenario, it remains to be seen whether there will be permanent damage in the form of higher inflation and lower economic growth.
Of course, it is not possible to completely rule out that it will be a longer war, but a structurally higher oil price is a disaster scenario for Donald Trump and for almost the entire world. From that perspective, the pressure on Iran will increase considerably and a short conflict remains the most likely scenario.
In that case, the Strait of Hormuz would soon reopen, the oil price would likely fall sharply again, expectations about the number of interest rate cuts could rise again, the US dollar will take a hit, and gold may recover.
Apart from that, it is even dangerous to draw conclusions based on a few days of price movements. The only correct conclusion is that it is still too early for actual conclusions at this time.
The fact that it is still too early for definitive conclusions is also reflected in gold's 4-hour chart. In this, the precious metal received support from two important price averages this week, and the price has at least shown sufficient resilience for now.
Based on the price action since last weekend, it is still far too early to say that gold's upward trend is definitely over.
After months of extremely weak price action, we also saw bitcoin and software (IGV) stocks rebound this week. Based on these price movements, however, it is difficult to conclude that bitcoin and software are suddenly in a bull market again.
Gold is fluctuating due to the conflict in Iran and a strong dollar, but remains technically supported at key levels. Despite the recent dip, it is still too early to conclude that the upward trend is over.
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