Gold trajectory remains oil-sensitive amid geopolitical tensions: Analyst

Gold: Back under pressure as concerns over US-Iran talks resurface

Performance

Spot gold prices, following a rally of 1.5 per cent on Iran deal hopes on Wednesday, slumped on Thursday as oil erased its losses following reports that Iran intends to keep its uranium. 

Reuters reported that Iran wants to keep its enriched uranium, reigniting concerns over negotiations that sent oil prices higher on Thursday, which in turn forced the softening US yields to spike higher.

  At the time of writing, the yellow metal was trading with a loss of 0.75 per cent at $4510.

Geopolitics and oil

On May 21, Tehran said that the latest proposal from Washington had partly bridged the gap between the two sides — a positive development — which was negated by the news that Iran plans to keep its uranium.

 

  Reuters reported on May 21 that Iran's Supreme Leader Mojtaba Khamenei had issued a directive that the country’s near-weapons-grade uranium should not be sent abroad. 

Iran is discussing with Oman how to formalise its control of maritime traffic through Hormuz through the imposition of tolls.

US President Trump, in response to Iran’s uranium stance, said that the US can take Iran's uranium and destroy it. He added that the Strait of Hormuz should remain free of tolls.

Data roundup

S&P Global US manufacturing PMI rose from 54.50 to 55.5 (estimate: 53.80) in its May preliminary reading, recording the fastest expansion in four years. However, it could be a temporary boost as customers try to get ahead of war-related inflation. Services PMI stagnated at 51.7 versus the forecast of 51.8. 

The weekly job report was somewhat positive as jobless claims fell from 212K to 209K (forecast: 210K), while continuing claims rose from 1776K to 1782K versus the forecast of 1786K.

  April housing starts fell 2.8 per cent m-o-m (forecast: 5.3 per cent). The Philadelphia Fed Business Outlook Index unexpectedly contracted in May after rising to the highest level since January 2025. 

The Eurozone's May composite PMI fell from 48.80 to 47.7, the worst reading since November 2023, as services PMI contracted more than expected.

  The UK fared even worse as May composite PMI tumbled from 52.6 in April to 48.50 (forecast: 51.60), marking the fastest contraction in a year.

Gold ETF and COMEX inventory

Total known global gold ETF holdings stood at 98.72 MOz, down by 0.23 MOz YTD. Global gold ETF holdings have shrunk by 2.2 MOz since the start of the year as the possibility of rate cuts fizzled out due to high oil prices. 

COMEX registered gold inventory stood at 15.70 MOz, down by 35.25 per cent from the record peak of 24.25 MOz seen in April 2025.

Dollar Index and yields

At the time of writing, the US Dollar Index was hovering around 99.39, up by 0.35 per cent for the day, as European PMIs fell short of expectations and oil prices recovered.

  Two-year US yields, which are more sensitive to the Fed's monetary policy compared to long-term yields, stood at 4.10 per cent, up 1 per cent for the day. Earlier, yields rose to 4.14 per cent, the highest since February 2025, before softening on US-Iran deal hopes.

  Ten-year yields at 4.61 per cent were up by 0.60 per cent, while 30-year yields at 5.13 per cent were up by 0.2 per cent.

Fed rate expectations

Markets assign an 86 per cent probability of a rate hike by year-end, as traders see a 100 per cent chance of a rate hike in February 2027.

Turkey sells US treasuries to defend its currency

Turkey’s central bank sold $14 billion worth of its US Treasury holdings in March to support its plummeting currency, the lira.

Indian Rupee recovers but remains weak. 

The Indian Rupee, which crashed to a record low of 96.96 on Thursday, erased some of its losses following RBI intervention.  The central bank may consider several options, including an interest-rate hike, to defend the struggling currency. 

The INR was trading at 96.32 at the time of writing. 

It is to be noted that the Bank of Indonesia hiked rates by 50 bps to 5.25 per cent on May 20 to defend its domestic currency, the rupiah.

Upcoming data

Major US data on deck in the short run include May University of Michigan Sentiment and inflation expectations (May 22), ADP weekly employment change (May 26), May Conference Board Consumer Confidence (May 26), April real personal spending, April PCE Price Index, and the final 1Q GDP reading (May 28). 

Traders will also monitor Japan's May national CPI (May 22) and Germany's final 1Q GDP reading (May 22).

Outlook

Gold's trajectory continues to depend on oil prices as traders remain fixated on rate moves. High oil prices are supporting the US Dollar and increasing the probability of rate hikes. 

US data do not indicate any major concerning weakness.

  Ten-year and 30-year US yields remaining above 4.5 per cent and 5 per cent respectively are restraining the US from taking aggressive steps against Iran. Iran, in turn, recognising its Hormuz advantage, is unlikely to yield meaningfully from its present negotiating position. Thus, upside in gold is expected to remain limited. 

Bears are eyeing a test of the $4365 support level. Resistance is at $4610/$4680. Selling into rallies is preferred unless there are concrete positive developments in the US-Iran standoff.  Volatile USDINR will remain a potential currency risk for gold trading.

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(Disclaimer: This article is written by Praveen Singh, head of commodities, Mirae Asset Sharekhan. Views expressed are his own.)