Trump's deadline for Iran is approaching; crude oil and gold face three major scenario tests

Why Did Trump’s Ultimatum Increase Volatility in Crude Oil and Gold Markets?

As Trump’s deadline for Iran approaches, at 8 p.m. Eastern Time tonight, due to rising uncertainty, stock markets and oil prices experienced increased fluctuations, while gold remained on the sidelines. Despite initial signals of a ceasefire, the risk of further escalation still exists, and most traders remain cautious.

On Monday, Iran stated that it hopes to permanently end the war with the United States and Israel, resisting pressure to reopen the Strait of Hormuz. Meanwhile, U.S. President Trump warned that if Iran fails to reach an agreement before the deadline Tuesday evening, it could be “eliminated.”

Trump said that negotiations with Iran were “progressing smoothly” before the final deadline, but he also insisted that any agreement must include freedom of navigation through the Strait of Hormuz. On Monday, Trump warned that if Iran does not accept U.S. conditions, U.S. forces might “destroy all bridges inside Iran by 12 a.m. tomorrow” and shut down all power plants.

After two days of declines, gold prices stabilized, approaching $4,660 per ounce in early trading today, after falling over 2% in the previous two sessions. Traders are weighing Trump’s latest threats to destroy Iranian infrastructure against the ongoing war’s impact on inflation and economic growth. On Monday, following Trump’s new threats, U.S. Treasury bond prices rose slightly, with bond traders expecting the Federal Reserve to keep interest rates unchanged for the rest of the year. Since gold does not pay interest, higher borrowing costs put pressure on gold.

Since the outbreak of Middle East conflict in late February, gold prices have fallen about 12%. Investors have sold gold positions to offset losses elsewhere, weakening gold’s appeal as a traditional safe-haven asset. Gold price movements are generally inversely related to oil prices; on Tuesday, oil prices rose for the third consecutive day, reaching their highest level since March. However, as gold prices decline, there are signs that bargain buyers are slowly increasing their holdings. Bloomberg’s calculations show that last week, gold ETF holdings increased for the first time since the outbreak of war.

Possible Scenarios When the Deadline Arrives

Re-“Technical” Extension: As in past cases, near the deadline, Trump might announce a short-term extension citing “progress” in negotiations, temporarily easing market panic. Oil prices could see a technical pullback, while gold might come under pressure as safe-haven demand cools.

Limited Military Strikes: Trump might carry out “limited” strikes on targets like power plants and bridges in Iran, as threatened, but avoid large-scale ground operations, using this as maximum pressure. Oil prices could fluctuate wildly, possibly spiking sharply during trading, while gold might again face downward pressure.

Further Escalation of Conflict: The scope of strikes could expand, with increased threats and more intense rhetoric and actions from both sides. This could trigger energy market turmoil, with oil prices soaring to higher levels; gold could fall further due to the strengthening dollar and rising oil prices, forcing investors to sell gold to cover losses in stocks and other assets. Given the current high market volatility, any unilateral bets based on “outcomes” carry significant risks. Maintaining flexible positions is the first principle for managing uncertainty.

Source: ATFX

Risk Warning: Funds are risky; please invest cautiously.