Gold prices opened significantly lower on Monday, April 20th. As of 07:30, the price had fallen by over $60, representing a decline of 1.5%, hitting a low near $4760. This sharp pullback completely reversed the strong performance seen last Friday, primarily driven by a sudden deterioration in Middle East tensions over the weekend. The Strait of Hormuz was closed again, US forces fired upon and seized an Iranian commercial vessel in the Gulf of Oman, and Iran explicitly refused to participate in a second round of US-Iran talks, vowing to respond with retaliation. This series of events not only heightened global energy risks but also intensified market concerns about inflation, significantly dampening expectations for Federal Reserve interest rate cuts. This led to a rapid rise in the US Dollar Index to a one-week high, placing clear downward pressure on gold.
The Middle East situation escalated abruptly with Iran's rejection of a second round of talks and a US military interception. According to multiple Iranian media reports on the 19th, Iran is fully prepared for a potential resurgence of conflict and has clearly refused to participate in the next round of negotiations with the US. On the same day, US forces took military action in the Gulf of Oman, intercepting and seizing an Iranian cargo ship. The Iranian military quickly condemned the US action as a blatant violation of the ceasefire agreement, calling it an act of "maritime piracy," and stated that a response would be forthcoming. Earlier, US media, citing White House officials, reported that US Vice President Vance would lead a delegation to Islamabad, Pakistan, for a new round of US-Iran talks. President Trump also confirmed on social media that the US delegation would arrive in Islamabad on the evening of the 20th, even suggesting he would "very likely" travel there personally if an agreement were reached. However, Iranian state media subsequently refuted these claims, emphasizing that Iran currently has no plans to participate in the next round of talks and that reports of a second meeting in Islamabad were inaccurate. Iranian President Pezeshkian, in a phone call with the Pakistani Prime Minister on the 19th, further pointed out that the US has continued to exhibit untrustworthy behavior during negotiation and ceasefire periods, revealing its true intention to abandon diplomatic channels.
The Strait of Hormuz has again become a focal point, with Iran designating a new shipping route and emphasizing the cost of security. The Iranian Islamic Revolutionary Guard Corps Navy has officially designated a new route stretching from south of Hormuz Island to south of Larak Island, naming it the "Larak Corridor." It explicitly stated that no vessel may pass through without permission from the IRGCN. Iran's First Vice President Aref publicly stated that security in the Strait of Hormuz is not a free lunch. He warned that while restricting Iranian oil exports, other countries should not expect to receive "free security." He further emphasized that there are only two choices: either achieve a truly free oil market for all, or have everyone share the risk of significant costs. Aref specifically noted that the stability of global fuel prices depends on the guaranteed and permanent removal of economic and military pressure on Iran and its allies. This statement is seen as a direct response to the ongoing US blockade of Iranian ports and sanctions on its oil exports.
The US Dollar Index staged a strong rebound as renewed risk-off sentiment weighed on gold. Amid the aforementioned geopolitical shocks, the US Dollar Index rose by 0.3% during Asian trading hours on Monday, reaching a high of 98.485, its highest level since April 13th. Previously buoyed by hopes for a peace agreement, the dollar had fallen to its lowest level since the conflict began last Friday; this rebound quickly reversed the prior selling trend. Analysts at Westpac pointed out that the latest developments in the Middle East over the weekend could significantly dampen market optimism. Analysts at Barclays further analyzed that current market sentiment indicates investors still favor the US dollar. They suggested that even if the Middle East situation normalizes, the dollar has further room to fall, and the current volatile conditions might present a good opportunity to re-establish short dollar positions.
Last week's optimism was quickly reversed after the Strait of Hormuz briefly reopened, boosting risk appetite. In stark contrast to Monday's sharp volatility, the market was filled with optimism last week. At that time, Iran announced the reopening of the Strait of Hormuz to navigation, leading to a significant recovery in risk appetite and heightened expectations for a imminent de-escalation of Middle East conflicts. Iranian Foreign Minister Araghchi had stated on a social platform last week that the Strait of Hormuz was open to all commercial vessels for the remainder of the US-brokered 10-day ceasefire between Israel and Lebanon, aimed at halting fighting between Israel and the Iran-backed Hezbollah. President Trump subsequently confirmed this news on his social platform, adding that as part of any agreement, the US would work with Iran to retrieve enriched uranium and ship it to the US. Against this backdrop, oil prices plummeted last week, Wall Street stocks rallied sharply, US Treasury prices surged with lower yields, and the US Dollar Index fell by 0.58% to 97.93 last Friday, hitting a seven-week low. For the week, the index fell 0.49%, marking a cumulative decline of about 2.1% over the past two weeks, the largest two-week drop since late January. George Vessey, Chief FX and Macro Strategist at London's Convera, analyzed that the dollar's weakness was primarily due to markets pricing out geopolitical risk premiums, rather than a broad deterioration in fundamentals. Interest rate futures at the time indicated that market expectations for a Fed rate cut in December had exceeded 50%. Boosted by declines in both the dollar and oil prices, spot gold rose 0.91% last Friday to around $4834, reaching an intraday high of $4889.24 per ounce, its highest level since March 18th.
The US military's firing and seizure of a ship triggered a chain reaction, with Iran vowing immediate retaliation. On the 20th local time, a spokesperson for the Central Command of the Iranian Armed Forces issued a statement condemning the US for violating the ceasefire agreement by firing upon an Iranian commercial ship in the Gulf of Oman and deploying soldiers to board the vessel, disabling its navigation system, constituting an act of "maritime piracy." The spokesperson warned that the Iranian armed forces would soon respond and retaliate against this "piratical act and armed robbery" by US forces. President Trump confirmed earlier that day on social media that a US missile destroyer had intercepted the Iranian cargo ship "TOUSKA" attempting to break the blockade, firing upon it and piercing its engine room, with Marines taking control.
Looking ahead this week, geopolitical risks persist alongside key US economic data tests. Investors this week must continue to closely monitor the latest developments in the Middle East. Simultaneously, a series of US economic data releases are scheduled. On Tuesday, March retail sales data will be released first. Several analysts anticipate a possible moderation following unexpectedly strong previous figures. Subsequently, pending home sales data for March will reveal conditions in the interest rate-sensitive housing market. Also on Tuesday, the Senate will hold a confirmation hearing for Kevin Warsh as the new Federal Reserve Chairman, although some Democratic senators are still pushing for a delay due to an ongoing Justice Department investigation into current Fed officials. If confirmed, Warsh's perceived dovish signals on monetary policy could provide some support for gold prices. The weekly unemployment claims report on Thursday will serve as the only labor market snapshot for the week. Analysts generally believe the job market remains in a stable phase of "low hiring, low firing," with claims staying at very low levels by historical standards. Towards the end of the week, traders will also focus on the April US Composite Purchasing Managers' Index (PMI), a real-time indicator offering key insights into overall economic activity.
In summary, rapidly intensifying Middle East geopolitical risks and adjustments to macroeconomic expectations are jointly influencing gold prices. The renewed closure of the Strait of Hormuz, the breakdown of US-Iran talks, and US military actions have not only pushed up oil prices and inflation expectations but have also reshaped the US dollar's safe-haven appeal. In the coming days, any new developments in the Middle East will directly dictate the direction of market risk appetite, while US economic data and Fed personnel changes will also serve as crucial variables affecting gold's trajectory. Investors need to remain highly vigilant, carefully navigating opportunities arising from each fluctuation within the complex environment of intertwined geopolitical risks and policy uncertainty.
(Spot Gold Daily Chart). As of 07:42 Beijing time, spot gold was trading at $4760.58 per ounce.
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