Worse for Gold Than Active War

Remember yesterday’s quick note?

Gold declined shortly thereafter. 

In yesterday’s Gold Trading Alert, I wrote the following on gold and silver:

“Not much new to report besides the fact that gold is back below the 50% retracement, the $4,800 level, and back below the level at which I wrote about re-entering short positions. 

It looks like the corrective rebound is over or very close to being over.

Same with silver. The white precious metal had its brief moment of strength and now it’s declining more than gold. 

Please note that silver corrected less than gold on a relative basis despite its industrial component which one would expect to drive silver higher given the rally in stocks. This did NOT happen, suggesting that silver is headed lower in the following weeks.”

Both precious metals declined. They both moved to new weekly lows, and silver additionally broke below its rising short-term support line.

The decline in the GDXJ was even more profound.

The GDXJ declined by almost 7% and it closed very close to the lowest April daily closes. From monthly high to almost monthly low in just two sessions – this tells you have quickly GDXJ can decline when it finally decides to move.

Quoting my previous comments:

“Namely, the GDXJ hit its 61.8% Fibonacci retracement and its rising resistance line, before declining right before Friday’s closing bell.

Not only have we seen two resistance levels being reached, but we also was an intraday reversal candlestick (so called gravestone doji candlestick). All those signs suggest that the rally is quite likely over.”

And you know what? It’s not only the technicals that support lower prices in the following weeks – so do the fundamentals.

The Ceasefire That Isn't

Let me lay out what happened during this "ceasefire" in the past week alone.

IRGC gunboats fired on two tankers on Saturday. Two Indian-flagged ships were targeted and forced to turn back. A container ship took rocket damage off Oman.

The US Navy fired on and seized the Iranian cargo ship Touska on Sunday, blowing a hole in its engine room.

Iran retaliated by firing drones at US Navy warships. No damage was reported, but this is direct military engagement between the two sides during a supposed ceasefire.

The US submarine USS Charlotte sank the Iranian Navy frigate IRIS Dena in the Indian Ocean near Sri Lanka. The ship was returning from an international naval exercise in India and was reportedly carrying no ammunition. 104 Iranians were killed, 32 injured. This was the first submarine sinking of a warship in active combat since the Falklands War in 1982.

The US boarded the sanctioned tanker M/T Tifani in the Indian Ocean between Sri Lanka and Indonesia. Trump said the military intercepted a "gift from China" to Iran.

And today, two more ships fired on near the Strait.

This is not a ceasefire. This is active naval warfare with a press release calling it something else. The distinction matters for gold but not for oil.

Why This is Worse for Gold Than Active War

The market has figured out something that most commentary is missing. From a supply disruption standpoint, the frozen conflict is functionally identical to active war. The Strait is at 5-16% of normal capacity. Ships are being shot at. Kuwait declared force majeure on all crude oil and refined product shipments. Iran's Kharg Island storage is filling up. 13 million barrels per day of production remains shut in. Half a billion barrels of cumulative supply have been lost.

Oil doesn't care whether the disruption comes from bombs or from IRGC gunboats and a permanent blockade. The supply is gone either way.

The dollar doesn't care either. The US is the world's largest oil producer. High oil from Strait disruption hurts Europe (6 weeks of jet fuel left), Asia (largest importers of Gulf crude), and developing countries (fuel rationing in Philippines, Nigeria, Pakistan) more than it hurts the US. Capital flows to where the pain is lowest. That's America. The dollar strengthens not on acute panic but on the structural widening of the economic gap between the US and everyone else. That's a more durable form of dollar strength than a safe-haven spike.

Gold is different. Gold needs acute fear. Bombs falling, escalation risk, "civilization will die tonight" rhetoric. That generates the spikes. A chronic standoff with ships being shot at but no dramatic headlines about infrastructure strikes doesn't produce the same safe-haven demand. The geopolitical premium drains out slowly. Meanwhile, all the structural headwinds remain: oil elevated → inflation sticky → Fed frozen → dollar strong.

Gold gets the worst of both worlds. The structural pressure stays (oil, inflation, dollar). The offsetting safe-haven bid fades (no acute crisis, just chronic standoff).

Gold declined yesterday. If peak tension couldn't hold gold up, the removal of that tension (via the indefinite extension) won't either. Today's 1.15% bounce is an emotional relief after yesterday's selloff. It doesn't change the direction.

Thank you for reading today's article – the free version of today's Gold Trading Alert. Subscribers receive the full analysis with charts, technical levels, and trading positions daily. Gold Trading Alerts are available directly and through the Diamond Package.

If you're not ready to subscribe yet, I encourage you to sign up for my free gold newsletter today.

Thank you.

Sincerely,

Przemyslaw K. Radomski, CFA