Strait of Hormuz Concerns Ease, Crude Oil Weakens, Gold Rebounds with Hidden Investment Opportunities

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Source: Huijin.com

The U.S. military has conducted airstrikes against military targets on Iran’s Halek Island. President Trump issued a strong warning: if Iran obstructs shipping through the Strait of Hormuz, the U.S. will target Iran’s oil infrastructure and has called on China, the UK, France, Japan, South Korea, and other countries to send warships to ensure the waterway remains open.

Iran has clearly stated that the Strait of Hormuz is closed only to “enemies and countries supporting their aggressive actions.” Neutral ships can pass with prior coordination and permission.

The international community is highly concerned. UK Prime Minister Rishi Sunak called for a “rapid resolution” to the military tensions and emphasized the need to restore freedom of navigation through the Strait of Hormuz as soon as possible.

The UK is working with European allies to develop a long-term collective plan to ensure regional navigation safety and mitigate impacts on the global economy. They have deployed unmanned boats capable of mine detection and destruction in the area, and are exploring the possibility of providing counter-drone technology support. However, Sunak also admitted that unmanned mine-clearing technology has not yet been fully validated, and final decisions are still pending.

Oil prices are showing signs of decline, with the crude oil market weakening.

Easing concerns over oil prices will directly trigger a correction in the global crude oil market and related price-increasing commodities.

From a long-term perspective, Navarro’s 13-page report points out that geopolitical risks related to Iran have artificially driven up oil prices for decades. The current situation adds a premium of $5 to $15 per barrel. If Iran’s threat to regional energy infrastructure and shipping routes is weakened, oil prices could return to equilibrium levels or even fall significantly below $60 per barrel.

However, analysts at ING, Warren Paterson, noted that the market is re-pricing for a long-term disruption of oil transportation through the Strait of Hormuz. With limited idle capacity, delayed U.S. supply responses, and restricted alternative routes, oil prices are expected to rise further under the baseline scenario.

Revised scenario forecasts suggest that if energy transportation is nearly completely disrupted before the end of May and gradually recovers from June to August, oil prices could hit record highs, requiring sustained high levels to help rebalance the market by suppressing demand.

Persistent high oil prices are fueling inflation risks. Rising energy costs may pass through to consumers, increasing stagflation risks and forcing major global central banks to recalibrate monetary policies.

Gold remains above key support levels, driven by both safe-haven demand and inflation hedging.

Amid geopolitical tensions and declining inflation fears, gold continues to perform strongly as a traditional safe-haven asset, with spot gold (XAU/USD) stabilizing near the $5,000 mark.

The U.S. dollar and U.S. Treasury yields have retreated from recent highs, providing some support for gold.

(Market chart: USD Index daily, source: YiHuitong)

This week’s key focus is on the Federal Reserve’s interest rate decision and the policy outlook of other major central banks. The Fed is likely to keep rates in the 3.50%-3.75% range. Investors will focus on Chair Powell’s forward guidance, as well as updates to the Summary of Economic Projections (SEP) and dot plots signaling future rate paths.

Data from CME’s FedWatch tool shows that expectations for a rate cut in June have significantly cooled, with the probability dropping from 51.2% a month ago to 23.6%. The market now prices in only one rate cut by the end of the year, a notable shift from previous expectations of two cuts.

Besides the Fed, the Bank of England, European Central Bank, Bank of Japan, and Bank of Canada are expected to hold steady. The Reserve Bank of Australia may raise rates again.

As a core hedge against geopolitical uncertainty, gold’s allocation value remains prominent. It is expected to remain volatile in the short term. In the medium term, as long as there are no clear signs of easing in Middle East conflicts, the safe-haven appeal of gold will continue to be valid.

Linkage between oil and gold: inflation transmission and safe-haven resonance

International oil and gold prices are showing a significant inverse correlation, primarily driven by inflation transmission mechanisms and geopolitical risk resonance.

Gold’s natural property is to hedge against geopolitical risks, but it is sensitive to real interest rates. International oil prices are closely linked to global inflation levels. Rising oil prices can quickly boost inflation expectations, affecting real interest rates and, consequently, gold prices.

In the current US-Iran conflict, disruptions in the Strait of Hormuz impact both oil supply and market risk appetite, creating a transmission chain: “Oil price increase → inflation expectations rise → real interest rates go up → gold weakens.”

Summary and technical analysis:

From a market logic perspective, oil price fluctuations influence gold indirectly through inflation expectations, with geopolitical risks acting as a catalyst for both assets to strengthen simultaneously.

If the conflict escalates further, leading to a long-term blockade of the Strait of Hormuz, oil prices could surge by 50%-100%, reminiscent of historical oil crises, with gold prices pulled in opposite directions by safe-haven demand and rising real interest rates, resulting in a highly volatile situation.

If the geopolitical premium on oil diminishes, gold may rebound based on real interest rate-driven volatility.

The linkage between oil and gold reflects current global risk appetite and highlights the profound impact of geopolitical conflicts on asset allocation, serving as a key insight for investors.

Technical analysis:

Spot gold has rebounded from the lower boundary of the upward channel.

(Spot gold daily chart, source: YiHuitong)

WTI crude oil futures have repeatedly tested the 0.618 Fibonacci retracement level.

(WTI crude oil futures daily chart, source: YiHuitong)

As of 21:45 Beijing time, spot gold is at $5,032 per ounce, and WTI crude oil futures are at $94.66 per barrel.