The end of the conflict in the Middle East will turn winners into losers and vice versa. Oil prices risk falling sharply. Gold, on the other hand, will begin to rise slowly but surely as the prospect of Fed rate cuts returns to the forefront. Let’s analyze the situation and make a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold has an inverse correlation with oil.
- Expectations of a Fed rate cut are supporting XAU/USD quotes.
- The precious metal’s trajectory depends on geopolitical developments.
- Long positions can be opened if gold breaks through $4,720.
Weekly Fundamental Forecast for Gold
Whoever controls oil shapes the global economy. Brent’s performance is influencing a wide range of asset prices, and gold is no exception. The precious metal is sensitive to central bank interest rates, bond yields, and the US dollar. All of these, in turn, are tightly linked to developments in the Middle East. Speculation about an imminent end to the US-Iran conflict sent Brent crude tumbling and boosted the XAU/USD.
Gold and Oil Prices
Source: Bloomberg.
The logic is quite straightforward: the higher oil prices rise, the stronger the inflationary pressure becomes. If Brent remains at elevated levels, the increase in consumer prices is unlikely to be temporary. Through second-round effects, the PCE index could stay above the 2% target for an extended period, potentially forcing the Fed to consider rate hikes.
Meanwhile, the escalation of tensions in the Middle East — following Iran’s reported ceasefire violation — has driven Brent crude sharply higher and pushed the probability of Fed tightening in 2026 to 30% for some time. After that, the US administration announced the end of “Operation Epic Fury.” Following this statement, Brent prices tumbled, the probability of monetary tightening fell to 15%, and the likelihood of monetary easing rose from zero to 18%.
Gold Price Performance and Market Expectations for Federal Funds Rate
Source: Bloomberg.
Gold prices appear to be moving predictably, driven by oil price fluctuations and the associated likelihood of shifts in Fed monetary policy. The only question remaining is which scenario will actually materialize.
Is Donald Trump presenting his announcement of progress in negotiations with Iran as fact rather than wishful thinking? This pattern has surfaced several times during the Middle East conflict, yet recent developments suggest the US is not inclined to escalate geopolitical tensions further. Will this embolden Iran? It sounds unlikely. Each day, Tehran loses billions of dollars due to disruptions in crude exports.
However, even if the third round of negotiations fails and oil prices soar again, gold clearly has a safety cushion. In a scenario of stagflation, central banks will either be cautious about increasing interest rates or commit a political blunder by tightening too aggressively. This will almost certainly lead to a recession and allow the precious metal to shine again.
Conversely, a peaceful resolution to the conflict in the Middle East would likely lead to lower oil prices, a weaker US dollar, and reduced expectations of Fed tightening. All these factors will create a tailwind for the XAU/USD.
Weekly Trading Plan for XAU/USD
An agreement between Washington and Tehran would push the gold price higher. Long positions established at $4,520 can be increased if the price breaks through the resistance level of $4,720 per ounce. Conversely, if the negotiations fail again, it would be better to use the previous strategy—buying the XAU/USD on price dips.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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