Brent Rises As Middle East Ceasefire Frays, Pressuring Gold

Crude prices jumped, weighin on gold, amid fears the ceasefire with Iran could break after the latest diplomatic overture to end the war failed and the US pushed to get ships through the Strait of Hormuz.

The Market-Moving Events

• Brent rose to almost $115 per barrel amid attacks across the Persian Gulf as the US Navy forced open the Strait of Hormuz, weighing on gold.
• Shipping companies are still reluctant to take the route out of the Gulf as Iran renews attacks on shipping, with one vessel at anchor in the UAE reportedly struck.
• Both sides suggest the ceasefire is still in place, but Trump says war could last another two to three weeks.

"Freedom" in the Strait, OPEC Raises Output

Brent prices started the week by dropping below $107 per barrel after US President Donald Trump announced "Project Freedom" that would guide ships out of the Persian Gulf. Also over the weekend, OPEC (without the UAE) raised its production quota by 188K barrels per day, the third increase in a row. However, those increases are contingent on the reopening of the Strait of Hormuz, as many of the cartel's producers are shipping below the quota. Crude prices rose after the IRGC asserted control over the Strait of Hormuz on Monday, threatening to fire on US warships that entered waters claimed by Iran.

Brent jumped almost to $115 amid reports that ships in the Strait were being attacked, including Iranian state media claims that it had struck US warships. However, those turned out to be just rumours, and US Navy ships crossed the Strait. However, so far, few ships have taken up the offer to be "guided" through the strait, though Bloomberg noted early Tuesday a large cluster of ships moving into position. Meanwhile, Iran launched ballistic and drone attacks against the UAE, resulting in a large fire at the Fujairah refinery, while the US sank several Iranian military "boats". Despite the hostilities, both sides indicated that the ceasefire remains in place. Trump said late on Monday during a press interview that he expected the war to continue for another two to three weeks. Before the war started, around 100 ships crossed the Strait daily, and only two ships are confirmed to have left since the start of Project Freedom less than a day ago. The US Navy provided close protection to ships transiting a section of the Strait free of mines, with analysts suggesting up to 30 ships a day could use the route if the protection isn't breached. More updates are expected on Tuesday, but a full reopening of the Strait remains difficult as long as Iran continues to threaten shipping, and no talks between the belligerents are currently scheduled.

Markets Moving on From War

Market reactions were affected by the holidays, as European markets caught up to events after being closed on Friday, while the UK and China were closed. China and Japan will be closed until Wednesday, reducing trading volumes. The dollar traded in tandem with Brent prices, reacting to geopolitical events. Gold slipped below the $4,600 level in early trading as investors worry that high inflation will keep US yields higher after the hawkish Fed decision last week. However, the situation appears to have calmed down, with US futures now in the green and the yellow metal rising.

Gold Recovering After Earlier Drop, Bottom In?

Gold prices are recovering after the yellow metal found support at the lower Bollinger band near $4500 per ounce but have yet to fully recover from the earlier drop. The decline in gold, in fact, formed a double bottom with the late April swing, which brings the upper swing of $4670 near the upper BB into focus. A move towards there with an eventual rejection could form a range until a breakout ultimately determines gold’s direction, while a breakout would expose $$4780. However, failing to get through the lower auto trendline would suggest further pain ahead, opening the door to $4350.

Source: SpreadEx | Spot Gold, 4-Hour Chart