Gold Trading Alert: With a glimmer of hope for a Middle East peace agreement emerging, oil prices collapsing and the dollar plunging, is gold poised for a major price surge?
2026-05-26 07:30:02
On Monday (May 25), spot gold prices surged 1.4%, closing at $4,570 per ounce. June gold futures also rose in tandem. News of potential reopening of the Strait of Hormuz, following substantive talks between the US and Iran in Doha, Qatar, quickly ignited market sentiment. Oil prices plummeted nearly 7%, easing inflation concerns and lowering expectations of a Fed rate hike. The US dollar index weakened simultaneously, providing upward momentum for gold prices. On Tuesday (May 26) in early Asian trading, spot gold traded in a narrow range, currently hovering around $4,570 per ounce.
Gold prices performed exceptionally well on Monday. Despite relatively light trading due to the US Memorial Day holiday, spot gold still recorded significant gains. The core driver of this move was strong market expectations of a de-escalation of the Middle East conflict. Over the past three months, the war with Iran has effectively blocked the Strait of Hormuz, disrupting approximately one-fifth of global oil shipments. High oil prices have directly fueled inflationary pressures and reinforced investor concerns about the Federal Reserve maintaining high interest rates for an extended period.
Now, the hope for a peace agreement has reversed this logic. The sharp drop in oil prices has eased inflation concerns, and the market is beginning to reprice the Federal Reserve's monetary policy path. Traders now believe the probability of a 25 basis point rate hike by the Fed in December has fallen to 40%, a stark contrast to the two rate cuts widely expected before the conflict erupted. This shift in expectations directly benefits gold—as a non-interest-bearing asset, gold is under pressure in a high-interest-rate environment, while a more accommodative interest rate path opens up upside potential.
UBS analyst Giovanni Staunovo's view is quite representative. He points out that current financial assets are heavily influenced by oil prices, and gold prices are no exception. The decline in oil prices has not only boosted gold prices, but more importantly, it has changed market expectations regarding the Federal Reserve's policies, a trend that is expected to continue in the short term.
The sharp adjustment in oil prices was the core catalyst for this round of market volatility. Brent crude futures fell $7.24 to $96.30 per barrel, and U.S. crude futures fell to $90.30, both plunging nearly 7%, with Brent crude breaking below the psychological threshold of $100. This decline stemmed directly from market optimism regarding a U.S.-Iran peace agreement.
According to informed officials, Iran's chief negotiator and foreign minister have met with the Qatari prime minister in Doha, focusing on issues such as the reopening of the Strait of Hormuz, the disposal of Iran's highly enriched uranium, and the unfreezing of frozen Iranian funds. US Secretary of State Rubio stated that the US is pushing hard for diplomatic success, aiming for either a "good deal" or "another approach." President Trump also posted on Truth Social that negotiations are progressing "well," while warning of a new round of strikes if negotiations fail.
Although both sides downplayed the possibility of an "immediate agreement," the market still picked up on positive signs: a ceasefire memorandum of understanding has made progress, giving negotiators 60 days to reach a final agreement. Ship tracking data shows that LNG carriers and supertankers have begun transiting the strait, further boosting market confidence.
However, peace is not achieved overnight. Analysts point out that even if an agreement is reached, the repair of damaged oil and gas facilities and the full restoration of cross-strait shipping will still take several months. The current crude oil supply gap of 10 to 11 million barrels per day will not disappear immediately, and inventory depletion pressure remains. This means that although oil prices have rebounded significantly, they still face uncertainty in the medium to long term.
Alongside falling oil prices, the dollar index fell about 0.35% on Monday to 98.98, hovering near a one-week low. Optimistic expectations of a peace agreement diminished the dollar's safe-haven appeal, and major currencies generally strengthened against it.
Commonwealth Bank of Australia economist Samara Hammoud analyzed that if a peace agreement is ultimately reached, the US dollar will weaken for some time. However, once the geopolitical shock subsides, the relatively solid fundamentals of the United States may support a dollar rebound. Chris Weston, head of research at Pepperstone Group, believes that if Brent crude oil falls further towards $90, declining short-term inflation expectations and weakened expectations of a 2027 interest rate hike will inject new vitality into risk assets.
Global market liquidity decreased due to holidays in many places, but this did not hinder the flow of funds from the US dollar and oil-related assets to risk assets and gold. The simultaneous rise in stock markets further confirms the trend of recovering risk appetite.
The complexity of the US-Iran negotiations goes far beyond what is apparent. Significant differences remain between the two sides on multiple issues, including the conflict between Israel and Hezbollah, the lifting of sanctions, and the Iranian nuclear issue. Trump's simultaneous push for the Abraham Accords and calls for more Arab and Muslim countries to normalize relations with Israel could further entangle the geopolitical landscape of the Middle East.
Iran has emphasized that it will not immediately negotiate on the nuclear issue and has its own considerations regarding the management of the Strait of Hormuz, including navigation services and environmental costs. The market generally believes that even if a framework agreement is reached, numerous challenges remain in its implementation. Israel's recent intensified military operations against Hezbollah may also add uncertainty to subsequent negotiations.
In summary, this round of gold price increases is the result of a combination of the phased release of geopolitical risk premiums and improved expectations for monetary policy. In the short term, with each step forward in peace negotiations, gold may continue to fluctuate at high levels, or even challenge new highs. However, in the medium to long term, the trend of gold will still depend on several key variables: whether a peace agreement can ultimately be implemented, the sustainability of the decline in oil prices, and the actual policy operations of the Federal Reserve under the leadership of the new Chairman Warsh.
If tensions in the Middle East truly ease, gold's safe-haven appeal may weaken temporarily; however, the global economy still faces inflationary uncertainties, geopolitical fragmentation risks, and policy divergences among major central banks, all of which provide solid support for gold. Investors should closely monitor data such as the upcoming US ADP employment report and Eurozone confidence survey this week, as these will further influence market judgments on the interest rate path.
For investors, three key variables need close monitoring going forward. First, substantial progress in the Strait of Hormuz negotiations, particularly whether key disagreements regarding the nuclear issue, the unfreezing of funds, and the strait's administrative rights can be truly resolved. Second, the future trend of oil prices; if Brent crude falls to $90 as analysts predict, the decline in short-term inflation expectations will further weaken expectations of interest rate hikes, injecting new vitality into gold prices. Finally, key economic data to be released this week, especially the US initial jobless claims, April PCE data, and durable goods orders data to be released on Thursday. These data, along with oil price movements, will influence central bank policy expectations.
(Spot gold daily chart, source: FX678)
At 07:27 Beijing time, spot gold was trading at $4,570.78 per ounce.
Gold prices rebound strongly: a shift from geopolitical risks to policy expectations
Gold prices performed exceptionally well on Monday. Despite relatively light trading due to the US Memorial Day holiday, spot gold still recorded significant gains. The core driver of this move was strong market expectations of a de-escalation of the Middle East conflict. Over the past three months, the war with Iran has effectively blocked the Strait of Hormuz, disrupting approximately one-fifth of global oil shipments. High oil prices have directly fueled inflationary pressures and reinforced investor concerns about the Federal Reserve maintaining high interest rates for an extended period.
Now, the hope for a peace agreement has reversed this logic. The sharp drop in oil prices has eased inflation concerns, and the market is beginning to reprice the Federal Reserve's monetary policy path. Traders now believe the probability of a 25 basis point rate hike by the Fed in December has fallen to 40%, a stark contrast to the two rate cuts widely expected before the conflict erupted. This shift in expectations directly benefits gold—as a non-interest-bearing asset, gold is under pressure in a high-interest-rate environment, while a more accommodative interest rate path opens up upside potential.
UBS analyst Giovanni Staunovo's view is quite representative. He points out that current financial assets are heavily influenced by oil prices, and gold prices are no exception. The decline in oil prices has not only boosted gold prices, but more importantly, it has changed market expectations regarding the Federal Reserve's policies, a trend that is expected to continue in the short term.
Geopolitical maneuvering behind the oil price crash: The Strait of Hormuz may reopen.
The sharp adjustment in oil prices was the core catalyst for this round of market volatility. Brent crude futures fell $7.24 to $96.30 per barrel, and U.S. crude futures fell to $90.30, both plunging nearly 7%, with Brent crude breaking below the psychological threshold of $100. This decline stemmed directly from market optimism regarding a U.S.-Iran peace agreement.
According to informed officials, Iran's chief negotiator and foreign minister have met with the Qatari prime minister in Doha, focusing on issues such as the reopening of the Strait of Hormuz, the disposal of Iran's highly enriched uranium, and the unfreezing of frozen Iranian funds. US Secretary of State Rubio stated that the US is pushing hard for diplomatic success, aiming for either a "good deal" or "another approach." President Trump also posted on Truth Social that negotiations are progressing "well," while warning of a new round of strikes if negotiations fail.
Although both sides downplayed the possibility of an "immediate agreement," the market still picked up on positive signs: a ceasefire memorandum of understanding has made progress, giving negotiators 60 days to reach a final agreement. Ship tracking data shows that LNG carriers and supertankers have begun transiting the strait, further boosting market confidence.
However, peace is not achieved overnight. Analysts point out that even if an agreement is reached, the repair of damaged oil and gas facilities and the full restoration of cross-strait shipping will still take several months. The current crude oil supply gap of 10 to 11 million barrels per day will not disappear immediately, and inventory depletion pressure remains. This means that although oil prices have rebounded significantly, they still face uncertainty in the medium to long term.
A weakening dollar and shifts in global liquidity: a rapid shift in risk aversion.
Alongside falling oil prices, the dollar index fell about 0.35% on Monday to 98.98, hovering near a one-week low. Optimistic expectations of a peace agreement diminished the dollar's safe-haven appeal, and major currencies generally strengthened against it.
Commonwealth Bank of Australia economist Samara Hammoud analyzed that if a peace agreement is ultimately reached, the US dollar will weaken for some time. However, once the geopolitical shock subsides, the relatively solid fundamentals of the United States may support a dollar rebound. Chris Weston, head of research at Pepperstone Group, believes that if Brent crude oil falls further towards $90, declining short-term inflation expectations and weakened expectations of a 2027 interest rate hike will inject new vitality into risk assets.
Global market liquidity decreased due to holidays in many places, but this did not hinder the flow of funds from the US dollar and oil-related assets to risk assets and gold. The simultaneous rise in stock markets further confirms the trend of recovering risk appetite.
Negotiation Details and Potential Risks: The Road to Peace Remains Full of Thorns
The complexity of the US-Iran negotiations goes far beyond what is apparent. Significant differences remain between the two sides on multiple issues, including the conflict between Israel and Hezbollah, the lifting of sanctions, and the Iranian nuclear issue. Trump's simultaneous push for the Abraham Accords and calls for more Arab and Muslim countries to normalize relations with Israel could further entangle the geopolitical landscape of the Middle East.
Iran has emphasized that it will not immediately negotiate on the nuclear issue and has its own considerations regarding the management of the Strait of Hormuz, including navigation services and environmental costs. The market generally believes that even if a framework agreement is reached, numerous challenges remain in its implementation. Israel's recent intensified military operations against Hezbollah may also add uncertainty to subsequent negotiations.
Looking ahead: The foundation for a gold bull market remains intact, but caution is advised against potential reversals.
In summary, this round of gold price increases is the result of a combination of the phased release of geopolitical risk premiums and improved expectations for monetary policy. In the short term, with each step forward in peace negotiations, gold may continue to fluctuate at high levels, or even challenge new highs. However, in the medium to long term, the trend of gold will still depend on several key variables: whether a peace agreement can ultimately be implemented, the sustainability of the decline in oil prices, and the actual policy operations of the Federal Reserve under the leadership of the new Chairman Warsh.
If tensions in the Middle East truly ease, gold's safe-haven appeal may weaken temporarily; however, the global economy still faces inflationary uncertainties, geopolitical fragmentation risks, and policy divergences among major central banks, all of which provide solid support for gold. Investors should closely monitor data such as the upcoming US ADP employment report and Eurozone confidence survey this week, as these will further influence market judgments on the interest rate path.
For investors, three key variables need close monitoring going forward. First, substantial progress in the Strait of Hormuz negotiations, particularly whether key disagreements regarding the nuclear issue, the unfreezing of funds, and the strait's administrative rights can be truly resolved. Second, the future trend of oil prices; if Brent crude falls to $90 as analysts predict, the decline in short-term inflation expectations will further weaken expectations of interest rate hikes, injecting new vitality into gold prices. Finally, key economic data to be released this week, especially the US initial jobless claims, April PCE data, and durable goods orders data to be released on Thursday. These data, along with oil price movements, will influence central bank policy expectations.
(Spot gold daily chart, source: FX678)
At 07:27 Beijing time, spot gold was trading at $4,570.78 per ounce.
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