With the war still raging, that spike gave way to a decline that ran for months. The geopolitical event moved the price for exactly one day. The interest-rate-channel and technical picture moved it for a quarter. The shock was temporary. The trend was durable.
Look at what is happening now, at the other end of the war. The peace deal broke over the weekend, and gold futures did the same thing in reverse. They spiked, popping on Sunday night and into Monday on the relief. And look at today. Gold is not extending that move. It is up only modestly. Silver is up a bit more, but nothing to write home about, either. The one-day rally on the single most de-escalatory headline of the entire war has already stopped moving higher (no new intraday highs), on the second day, the same way the one-day spike at the war’s start gave way almost immediately.
That is not a coincidence. It is the same lesson twice. Geopolitical events, whether the war starting or the war ending, move this market briefly and then let go of it. What holds the price is the technical situation and the monetary backdrop, and neither of those just changed in gold’s favor.
This leads to a conclusion that I think most of the market is missing. The peace being signed Friday is, by every account, close to the best case. A complete deal, the Strait reopening, the war over. The market has spent the previous session and today’s pre-market trading pricing exactly that. And when the best case is fully priced, the surprises from there can only run one way.
For gold to fall further on the deal, something even more peaceful than “complete peace” would have to arrive, and there is no such thing. But the list of things that could disappoint is long, starting with the following:
– The signing could slip on Friday, the way every prior deadline has slipped
– Israel could reignite Lebanon
– Iran could slow-walk the thirty days it has to actually reopen the Strait
Or, most simply, nothing new could happen at all. And if nothing happens, the market’s attention turns back to what it was ignoring, a 4.2% inflation rate and a Federal Reserve that has not eased.
And the timing of what comes next could not be sharper, because the catalyst is no longer geopolitical. With the war (possibly) clearing, the entire question for gold comes down to the Federal Reserve, and Warsh chairs his first meeting tomorrow. The rate decision itself is not the event, a hold is all but certain. The event is the tone and the projections, and there is a specific asymmetry worth understanding. The market has come to expect Warsh to lean dovish, helped along by the deal and falling oil. When expectations are set that high, even a neutral, data-dependent message can read as hawkish by comparison, and hawkish is what pressures the metals. So, the bar for Warsh to satisfy a market positioned for dovishness is high, and the risk is that he disappoints it.
Put the whole picture together and it resolves cleanly. A war that should have launched gold instead saw it fall 20% while the war raged, because the real driver was rates, not fear. That same war is now ending, and the relief rally is already fading on its second day, exactly as the opening spike faded on its second day.
The peace is priced, and not even signed, so the surprises skew lower. And the catalyst that actually moves this market, the Fed, sits one day away with the burden of proof on the dovish case. I think the short-term bounce is a bounce, not a turn, and that once these geopolitical events finish moving the price the way they always do, briefly, the market is likely to go where the technical and monetary situation points it. That direction has been down for three months, and nothing in this deal has changed it.
Crude, Dollar, and Gold at Critical Junctures
The full version of today’s analysis includes analysis of multiple markets, including silver, mining stocks, copper along with key trading details, but in today’s free article, I’m going to provide my comments on three markets” crude oil, USD Index, and gold.