Gold prices may see a boost if oil prices decline further, but any upward movement is expected to be limited, according to Praveen Singh, Head of Currencies and Commodities at Mirae Asset ShareKhan. On May 21, spot gold traded with a positive bias, buoyed by hopes of a deal between Iran and the United States. At the time of writing, the metal was up 1.35% on the day at $4,570, as a slump in crude oil eased rate hike concerns to some extent.
Gold Price Performance
In the week ending May 22, spot gold traded in a narrow range of $4,453 (May 20) to $4,589 (May 19), closing with a weekly loss of 0.65% at $4,510 on Friday. The decline was driven by rising odds of a Federal Reserve rate hike due to inflation fears.
Geopolitics and Oil
Over the weekend, negotiators from Iran and the US worked to finalize a memorandum of understanding (MoU) that could open the Strait of Hormuz and establish a 60-day ceasefire. This would provide both sides more time to resolve differences on key issues such as uranium enrichment, Israel's war in Lebanon, and the release of Iranian oil revenues frozen in foreign banks. While progress has been noted, divisions remain on control of the Strait of Hormuz, the US blockade, Israel's ambitions, and Iran's frozen funds.
Esmail Baghaei, spokesperson for Iran's negotiating team, stated that future management of the Strait of Hormuz is a matter for Oman and Iran to agree upon. He denied Iran seeks a toll system, mentioning only fees for navigational services. Baghaei insisted that a ceasefire in Lebanon must be included in the MoU, and that Iran would allow commercial shipping through the strait only if the US lifts its blockade of Iran's ports. Nuclear issues would be discussed during the 60-day ceasefire period. Iran also demands the release of up to $12 billion in frozen assets held in Qatar.
Under the potential MoU, Tehran would agree to give up its stockpile of highly enriched uranium, though the method would be subject to further talks. Iran maintains its right to nuclear technology and insists its program is peaceful. US President Donald Trump urged Muslim-majority nations to normalize relations with Israel as part of the emerging deal. At the time of writing, Brent crude futures were down 6.38% at $93.87.
Data Roundup
US data released on May 22 were bearish for commodities. The University of Michigan consumer sentiment fell 5 points to 44.80 in May, the lowest on record, due to rising inflation. Consumers expect prices to rise an annualized 3.9% over the next five to ten years, up from 3.5% in April, the highest in seven months. One-year inflation expectations rose from 4.5% to 4.8% year-over-year.
ETF and COMEX Inventory
As of May 22, total known global gold ETF holdings stood at 98.65 million ounces, down 0.30 million ounces year-to-date. Holdings fell 0.14 million ounces in the week ending May 22. Registered COMEX gold inventory slid 0.03 million ounces to 15.67 million ounces last week.
CFTC Position
Money managers decreased their bullish gold bets by 6,239 net-long positions to 94,388 in the week ending May 19, according to CFTC data. The net-long position was the least bullish in three weeks, as long-only positions fell 5,012 lots to 124,058, while short-only positions rose 1,227 lots to 29,670, the highest in three weeks.
US Dollar Index and Yields
At the time of writing, the US Dollar Index was down 0.25% at 99.01, easing from a nine-week high due to a sharp decline in oil prices and improved risk sentiment. US markets were closed on May 25 for Memorial Day, so bonds did not trade. In the week ending May 22, two-year US yields rose 1.5% to 4.12%, while ten-year yields were down 2 basis points for the week.
Federal Reserve Governor Signals Hawkish Stance
Fed Governor Waller said on May 22 that while he prefers the Fed hold rates until more clarity emerges on the Iran war's impacts, the next move could be a rate hike unless inflation starts declining soon. As of May 22, investors priced in a full quarter-point rate hike by December for the first time.
USDINR Falls
The USDINR pair has come under pressure due to easing geopolitical tensions leading to a sharp decline in oil prices and the RBI's assessment that the INR has become undervalued after a sharp decline since the Iran war began. The pair has fallen nearly 1.8% from its record high of Rs 96.96.
Upcoming Data
Major US data due this week include May ADP weekly employment change (May 26), May Conference Board Consumer Confidence (May 26), April real personal spending, April PCE Price Index, and the first-quarter final GDP reading (May 28).
Gold Price Outlook
Although the US and Iran have reduced differences, uncertainty lingers. US officials worry Iran will drag its feet on nuclear issues after securing some relief under the MoU. Israel is concerned the US could do a deal harming its interests. Iran fears the US may not honor commitments. US yields may soften if an agreement is reached, boosting gold prices. However, long-term yields are rising on inflation risk premium, inflation expectations, AI capex spending, fiscal overhang, and term premium, limiting yield declines even if the conflict ends. In this scenario, gold may gain as oil prices fall on a potential Iran deal, but upside remains capped. Spot gold can trade with a positive bias in the very short run, with support at $4,500/$4,450 and resistance at $4,610/$4,670.
Note: Currency exchange risk is material. (Disclaimer: Recommendations and views are those of experts and do not represent the views of The Times of India.)
