The yellow metal is caught in a tug-of-war between two powerful forces that are both pulling in the same direction—downward. Normally, geopolitical turmoil would send investors scurrying into gold. But the current drama over a potential US-Iran peace deal is doing the opposite, compounding the damage already inflicted by aggressive central-bank rhetoric.
Spot gold has plunged 26% from its January record, with the latest session closing at $4,172.50 per ounce—a weekly loss of roughly 4%. Earlier in the week, prices had hovered near $4,187, but the selling pressure has only intensified. The metal now sits just above the critical $4,000 support level, a line in the sand that chartists are watching nervously.
The main culprit is the interest-rate outlook. US producer prices jumped in May at the fastest pace in three and a half years, crushing any lingering hopes for a near-term rate cut. Markets now assign a 60% probability to another rate hike from the Federal Reserve before year-end. That expectation makes non-yielding bullion far less attractive compared to bonds and stocks, which have been luring capital away.
Across the Atlantic, the European Central Bank added its own pressure. On Thursday, the ECB raised its benchmark rate by 25 basis points to 2.25%, its first hike in almost three years. The move, driven by rising energy costs, further erodes gold’s appeal in a world where cash is finally earning something again.
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Yet the geopolitical picture is far from clear. US President Donald Trump surprised the markets by announcing an imminent peace agreement with Iran, including a tentative signing ceremony in Europe this weekend that would reopen the Strait of Hormuz. The Iranian Foreign Ministry swiftly denied that any final deal had been reached, leaving the outcome deeply uncertain.
This fog of war has created bizarre divergences. While spot gold slid, December gold futures on the COMEX jumped more than 2% to $4,206, reflecting a market that is betting on continued volatility rather than real peace. The week before, gold had already tumbled after Trump called off a planned military strike on Iran.
From a technical standpoint, the damage is severe. The spot price is trading below its 200-day moving average for the first time in months. The Relative Strength Index has dipped to 26, signaling an oversold market, though another reading put it at 30.9, just above the oversold threshold. If the $4,000 floor gives way, the next stop could be the year’s low of $3,901.30.
Beneath the daily noise, mining companies are placing long-term bets. The Fenix gold mine in Chile started production earlier this year. Meanwhile, Kinross is planning to invest approximately $3 billion in the Lobo-Marte project, a site designed to deliver steady output for more than two decades. These massive commitments underscore the industry’s faith in gold’s future, even as the short-term outlook remains clouded by hawkish central banks and diplomatic whiplash.
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