The United States and Iran have agreed to a two-week ceasefire, with negotiations set to take place in Pakistan. During this period, the U.S. and Israel will suspend attacks on Iran, and Iran has stated that the Strait of Hormuz will be secure for navigation within two weeks. Since March, market dynamics have been dominated by U.S.-Iran tensions, with the first phase characterized by supply disruptions driving up oil prices and energy inflation weighing on gold. The current ceasefire and anticipated reopening of the Strait of Hormuz may alleviate near-term risks of an oil price surge and selling pressure on gold. Following the announcement, Brent crude quickly fell below $100 per barrel, while COMEX gold broke above $4,800 per ounce.
Looking ahead, for oil markets, we note that geopolitical negotiations remain uncertain, and the risk of heightened volatility persists. Additionally, physical supply shortages have become a reality. Compared to the resumption of trade, restoring crude production in Gulf countries may take more time. The second phase of the geopolitical situation may depend on whether oil trade and production can recover steadily. Before that happens, a return to moderate oil price levels may face resistance.
For gold markets, previously priced-in expectations of interest rate hikes may be subject to revision. In the coming phase, whether due to an oil price pullback following de-escalation, a shift toward looser monetary policy, or heightened recession risks from supply shocks triggering gold’s safe-haven appeal, cyclical investment demand and prices for gold may see a recovery.
The first phase of U.S.-Iran tensions saw supply shocks pushing up crude prices, while energy inflation suppressed gold. Since March, both oil and gold markets have been driven by these geopolitical developments. On one hand, oil markets faced direct disruption from halted trade through the Strait of Hormuz, leading to a physical supply deficit. According to satellite data, oil transit through the strait was largely halted in March. Even accounting for Iran’s retained crude exports and pipeline exports from Saudi Arabia and the UAE, total Gulf exports may have fallen by 14–15 million barrels per day. Net supply disruption is estimated at 11–12 million barrels per day. The physical oil balance may have shifted from a surplus of about 2.5 million barrels per day to a deficit of 8–9 million barrels per day. As disruptions persisted, Brent’s price volatility shifted toward $100 per barrel, moving from a previously projected moderate scenario toward a risk scenario.
On the other hand, gold faced pressure from energy-driven inflation and expectations of interest rate hikes, leading to significant selling of gold ETFs in European and North American markets. COMEX gold fell 10.9% in March, its worst monthly decline since 2013. The sell-off was largely driven by rising inflation risks from higher oil prices, which clouded the outlook for Federal Reserve rate cuts. Global gold ETFs saw outflows of 87 tons in March, the largest monthly reduction since October 2022, with North America accounting for the majority of the selling.
The resumption of oil trade may ease near-term inventory pressures. Satellite data shows marginal recovery in Strait of Hormuz transit in early April. The ceasefire could allow the release of accumulated floating storage in the Middle East, temporarily alleviating inventory pressure in Asian markets. However, geopolitical negotiations remain uncertain, and production recovery in Gulf countries may take time. OPEC’s March output fell sharply, with significant declines from Iraq, Saudi Arabia, the UAE, and Kuwait. Venezuela’s production saw a modest recovery, offering limited buffer.
Looking forward, the ceasefire may ease near-term upward pressure on Brent, but with physical shortages and production damage already in place, a full return to baseline price levels depends on steady recovery in trade and output. Further downside for oil may be limited, and volatility could return if negotiations stall. Disruptions to Russian seaborne exports may also provide some support for oil prices.
Following the recent sell-off, gold may find support from its safe-haven qualities or expectations of monetary easing. In our annual outlook, we anticipated slower U.S. growth and continued Fed easing, supporting cyclical gold demand. The U.S.-Iran conflict introduced two alternative scenarios: one where oil-driven inflation delays Fed easing—negative for gold—and another where supply shocks deepen recession risks, boosting gold’s safe-haven appeal. We believe the March sell-off already priced in the first scenario, but unlike 2022, the likelihood of Fed rate hikes this year remains low. With the temporary ceasefire, oil price surge risks may ease, suggesting gold selling pressure could subside and rate hike expectations may adjust.
Going forward, whether from an oil price correction, a dovish monetary policy shift, or recession risks highlighting gold’s safe-haven role, cyclical gold demand and prices may have room to recover. We also reiterate our view that central bank gold buying will continue to provide support. In the short term, further use of gold reserves for liquidity management in Gulf countries appears unlikely. Over the medium to long term, geopolitical and strategic security concerns are expected to underpin structural central bank gold demand. As of March, China’s central bank has increased its gold reserves for 17 consecutive months.
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