Gold sees its largest bullish rise in six months as oil prices continue to fall. Crude oil prices have now fallen to $75.00, the lowest in almost four weeks due to a possible Oman-Iran agreement. According to Iran, an agreement has been reached but does not necessarily open the strait fully.

Gold is rising as investors expect lower oil prices to pressure inflation, meaning fewer interest rate hikes. As a result, investors can again invest in non-yielding assets such as Gold. However, this primarily depends on how low oil prices and inflation fall. 38% of analysts continue to expect the Federal Reserve to hike twice this year, while 43% believe it will hike once.

As a result, the price of oil and next week’s inflation rate will primarily determine if Gold’s momentum will continue.

Crude Oil - Iran and Oman Reach a Temporary Agreement on The Strait of Hormuz

Oman and Iran have come to an agreement to safely open the strait to certain ships. However, Iran has also said the deal will proceed if ‘certain parties do not obstruct the process’. Here, Iran is referring to the US, which is holding separate talks with Iran.

Oil prices are falling based on the news of the agreement. However, investors should note that the agreement is relatively weak. The agreement only covers a limited number of ships through a small route. In addition to this, the US continues to block the strait to Iran. For this reason, market analysts remain cautious about any positive news while the US does not have an agreement in place with Iran.

In the past two weeks the price has fallen by 21% but based on historic correlations between oil prices and inflation, this is not enough to pressure inflation. The Federal Reserve is looking to push inflation to 2%, with inflation currently at 3.5%.

As a general rule, most economists believe that if oil prices remain 10% lower than their previous price, inflation falls by a maximum of 0.40%. So far, inflation has fallen by 20% meaning a further 10% is needed to bring inflation down to its target. Therefore, oil would need to fall to $66 per barrel and remain there for some time in order for inflation to fall to 2%. Otherwise, the Federal Reserve is likely to continue considering interest rate adjustments.

Currently, the price of Crude Oil is struggling to cross below the support level of $74.40. Over the past 24 hours three attempts have been seen. However, the price action will largely depend on the US and Iranian negotiations. If the price breaks below the support level, technical analysts will maintain a bearish bias, targeting the psychological $70.00 level next, followed by support at $68.00.

Gold - Importance of Inflation

Gold prices saw a significant surge on Wednesday in response to lower oil prices, a weaker Dollar and hopes that this could lower inflation. However, this cannot yet be known, as demand and the employment sector remains resilient.

On Wednesday, three members of the Federal Reserve spoke to journalists about monetary policy. All three generally sounded hawkish and willing to hike interest rates.

Neel Kashkari, Minneapolis Fed President - ‘Now is the time to start slowly moving up as we get more data in.’

Lisa Cook, Fed Governor - ‘If I do not see signs of disinflation soon, I am willing to act.’

Mary Daly, San Francisco Fed President - ‘The answer there is be vigilant, to watch the inflation as it comes in, but be very prepared to take action.’

Tomorrow’s NFP data will trigger volatility for Gold and the US Dollar, however, the inflation rate next week will be more influential. Stronger NFP data and higher inflation are likely to weaken Gold, while weaker data could fuel a medium-term rise.

Gold’s technical outlook remains cautiously bullish in the short term. The price is trading above its 50-day moving average, and momentum indicators continue to strengthen. Immediate resistance is located around $4,300, and a break above this price could indicate a further rise. On the downside, traders may first target the $4,220–$4,200 support zone, followed by the more significant $4,157 level.

As long as gold remains above $4,160, bearish signals are avoided; however, a rejection from $4,300 and a break below this support would weaken the bullish structure.

Key Takeaway Points:

• Gold posted its strongest six-month rally as oil prices and the US Dollar declined.
• The temporary Oman-Iran agreement pushed crude oil towards $75, but the deal remains limited and uncertain.
• Oil may need to fall towards $66 and stay there to significantly reduce inflation pressure to the Fed’s target.
• Gold’s next major catalysts are the US jobs report and next week’s inflation data.
• Gold remains cautiously bullish above $4,160, with resistance near $4,300.