ATFX: Cumulative pullback exceeds 26%, can the gold bull trend continue?
ATFX Market Review: On January 29, gold hit a record high of $5,597, then began to decline. As of the start of the European session today, gold is quoted at $4,100, down $1,497 from the record high, a cumulative decline of 26.74%, close to 30%. The Fibonacci retracement theory suggests that a retracement of around 38.2% allows the trend to continue, while a retracement of around 61.8% makes it difficult for the trend to persist. Gold's current retracement is still within a healthy range, causing limited damage to the long-term bullish trend.
Figure 1, WTI and Gold Price Overlay - ATFX
The US and Iran signed a memorandum of understanding on June 17, but announced on July 8 that the MoU "has ended." In less than a month, US-Iran relations have taken a major turn. The previous logic—US-Iran reconciliation, reopening of the Strait of Hormuz, high inflation subsiding, the Fed halting rate hikes, and gold rising—no longer applies.
On July 9, WTI fell from a high of $74.48 to $71.26, a drop of over $3. However, the conflict between the US and Iran continues to escalate. According to media reports, explosions were heard in Iran's southern cities of Bushehr and Choghadak, and also at the port of Abbas. However, in the past 24 hours, Iran has moved 11 million barrels of oil out of the Strait of Hormuz at the fastest possible speed, although the buyer has not yet been confirmed. This temporary supply increase led to WTI's overnight decline. It is not recommended to hold overly optimistic expectations about the US-Iran issue due to the drop in WTI prices.
Figure 2, Strait of Hormuz Vessel Traffic Data Curve - ATFX
Looking at traffic through the Strait of Hormuz, although Iran has not officially announced a renewed blockade of the strait, the actual number of vessels passing through is very limited. According to third-party monitoring data: from the night of July 8 to the early morning of July 9, the entire strait recorded only 5 passages , with only 1 merchant ship leaving the Persian Gulf; on July 9, only about 2 oil tankers ventured through, with shipping nearly stalled. Most of the "5 passages" recorded may have been the tankers used by Iran to urgently transport the 11 million barrels of oil.
Today's WTI movement is extremely critical. If it continues yesterday's sharp decline, it means market expectations have fully shifted to a "temporary conflict"; if oil prices rebound quickly, it means the conflict between the US and Iran may escalate. Focus on the key $70 level. Once breached, both high inflation expectations and Fed rate hike expectations will cool down, potentially boosting confidence among gold bulls.
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