Gold has delivered one of the more counterintuitive reactions across global markets in recent weeks, with price action diverging from its traditional safe-haven role amid escalating tensions in the Middle East.
Under normal conditions, heightened geopolitical risk—particularly outright conflict—would be expected to drive gold higher in line with its usual safe-haven status. However, recent market behaviour has flipped that relationship on its head. Instead of acting as a pure haven, gold has been trading more as a function of the US dollar and US yields – investors earn yield if they have dollars, while earn nothing if they are long of gold.
In this environment, improvements in risk appetite—such as signs of de-escalation or progress toward a peace deal—have seen gold push higher, while sharp escalations in tensions have triggered declines, largely through USD strength and yield dynamics.
The Trade Setup
This creates a clear, event-driven opportunity for traders:
- Bullish Scenario (Peace Deal / De-escalation):
Any confirmation of renewed negotiations or a formal peace agreement in the Middle East could weaken the US dollar and support a broader risk-on move. In this scenario, gold is likely to extend higher, continuing the recent correlation with softer USD and falling yields. - Bearish Scenario (Escalation / Renewed Conflict):
A breakdown in talks or a resurgence in hostilities would likely trigger a flight into the US dollar and a spike in yields. Under the current regime, this would see gold move lower, despite the geopolitical backdrop, as USD strength dominates.
Gold has seen decent moves higher over the last few days on the back of updates from both the US and Iran that they are prepared to talk again while news of potential talks between Israel and Lebanon – the first for 30 years – has exacerbated those moves. But now the market will need to see evidence one way of the other, and we are expecting that in the coming sessions, and Gold is sitting at some strong technical levels that will enable traders to take advantage of moves in either direction. It has topped out near monthly highs in trading today and further strength could see it break higher to $5,000 an ounce with longer-term resistance now just under the $5,200 level on the Daily chart, whilst downside support is relatively close near $4,700 with a break there likely to open the way for a move back towards recent lows.
Resistance 2: $5,418.50 – March High
Resistance 1: $5,172.25 – Trendline Resistance
Support 1: $4,723.24 – Trendline Support
Support 2: $4,195.40 – 200 Day Moving Average
