Ceasefire "fragile as paper"! Oil prices crash, gold laughs, is interest rate cuts coming back?

China Securities Journal, April 8 — (Song Yafen) has experienced over a month of conflict, and Iran has welcomed a brief period of calm.

On April 7, local time, U.S. President Trump posted on social media that, at Pakistan’s request, the U.S. will suspend bombing and attacks on Iran for two weeks.

Iran also responded by accepting the ceasefire proposal. According to a statement from the Secretariat of Iran’s Supreme National Security Council, negotiations with the U.S. will begin on April 10 in Islamabad, the capital of Pakistan.

However, the “ceasefire agreement” not only failed to cool the soaring international gold prices but instead triggered a significant rally in gold prices.

Early morning on April 8, spot gold surged by 2.5%, and COMEX gold rose by over 3.5%, both breaking through $4,800 per ounce again.

Wang Weimang, an investment manager at Zhonghui Futures Asset Management, told China Securities Journal that, on the surface, this seems to contradict the traditional logic of “buying gold for war risk hedging, selling gold as peace risk recedes,” but actually reflects a fundamental shift in market trading logic: from “war pushing up oil prices → inflation heating up → rate hike expectations suppress gold,” to “ceasefire lowering oil prices → inflation cooling → rate cut expectations restarting → positive for gold.”

Since the outbreak of the U.S.-Israel-Iran conflict at the end of February, gold has not only failed to rise but has fallen about 12%. Wang Weimang believes the core issue is the effective blockade of the Strait of Hormuz, causing oil prices to soar above $115 per barrel, with energy costs surging through the global market, sharply increasing inflation pressures. As a result, market expectations for the Federal Reserve to cut interest rates, which were about two times earlier this year, have been completely reset to zero, even shifting to bets on rate hikes. The ceasefire agreement suggests the strait may gradually reopen, causing oil prices to plummet by 15%-19%, signaling a reversal in inflation pressures, and the market quickly re-pricing.

In Wang Weimang’s view, if oil prices continue to decline, the Federal Reserve will regain room to cut rates, and the opportunity cost of holding gold as a non-yielding asset will significantly decrease, creating room for upward adjustment in both investment demand and prices.

The simultaneous weakening of the U.S. dollar is also a key factor driving the gold price surge. Wang Weimang stated, “The sharp drop in oil prices weakens inflation’s support for the dollar, and the easing of conflict reduces the dollar’s safe-haven demand. Since gold and the dollar are negatively correlated, a weaker dollar directly provides additional upward momentum for gold prices.”

Furthermore, Wang Weimang believes that the extreme fragility of the ceasefire, the demand for restoring the gold-oil ratio, and a technical rebound after prior overselling all amplify the upward momentum of gold.

This “two-week” ceasefire is only a temporary arrangement, contingent on Iran fully opening the Strait of Hormuz, essentially a diplomatic buffer plan of “trading space for time.” Iran’s ten-point plan demands the U.S. withdraw all bases from the region, lift all sanctions, and release frozen assets, which are far apart from the U.S. stance.

“Any failure to meet these demands could lead to a resumption of military conflict. This ‘cautiously optimistic’ rather than ‘fully optimistic’ market sentiment means that the safe-haven attribute of gold has not been completely abandoned,” Wang Weimang emphasized.

Market technical operations also support the surge in gold prices. Wang Weimang pointed out that, previously, rising oil prices pressured gold, causing the gold-oil ratio to deviate significantly from its historical equilibrium. Macro hedge funds then engaged in paired trades of “long gold, short oil.” Additionally, in March, gold prices plummeted, marking the first monthly decline of over 10% since 2013, with obvious oversold signals on the technical side, forcing many short positions to cover and forming concentrated buying power.

Looking ahead, Wang Weimang expects that during the negotiations from April 10 to 24, gold prices will likely fluctuate at high levels with increased volatility.

“Uncertainty in negotiations and the continued weakening trend of the dollar provide long-term support for gold’s bottom,” he said. However, Wang Weimang also pointed out that there are negative factors. If the agreement exceeds expectations and a framework consensus is reached, profit-taking pressures could weigh on gold prices. Additionally, if the upcoming U.S. CPI( Consumer Price Index) and PCE( Personal Consumption Expenditures) data released this week surpass expectations, it could again suppress rate cut expectations and exert short-term pressure on gold.

Wang Weimang analyzed that the future trend of gold prices after negotiations will heavily depend on the outcome.

The first scenario is the achievement of a comprehensive peace agreement. The probability is low; even if geopolitical tensions decrease and monetary policy shifts back to easing, there remains room for upward recovery in gold investment demand.

The second scenario is a breakdown of negotiations and escalation of conflict, with moderate probability. In this case, the market will face a complex battle between bulls and bears: superficially, escalating conflict favors safe-haven demand, but if oil prices surge again, inflation and rate hike expectations will return in tandem, and the dollar may strengthen again, putting downward pressure on gold prices, reverting to the difficulties seen in March.

The third scenario is a delay in negotiations, which is a high-probability event, with gold price volatility gradually shifting upward.

However, Wang Weimang also emphasized that in the medium to long term, regardless of short-term negotiation outcomes, the strategic value of gold remains solid. The normalization of geopolitical risks will continue to provide sustained premium support for gold prices. The global political and economic order is still being reconstructed, and concerns over U.S. fiscal sustainability persist. In the context of the Federal Reserve being in a rate-cut cycle and the weakening of dollar credibility, gold, as a high-quality asset backed by sovereign credit, will see its price center continue to rise.(China Securities Journal App)

**　　(The views expressed in this article are for reference only and do not constitute investment advice. Investment involves risks; please proceed with caution.)**

Editor: Yuan Yuan, Jia Yifu