There was a time when a $65 drop in gold was blockbuster news for the precious metals market, now it’s the usual daily volatility. That’s in part because the market is more lively but it mostly reflects the law of big numbers in that at $5108, a $65 is just a 1.2% decline.

Zooming out, the chart shows why as today’s price action is within the weekly range and certainly within the March range of $5000-$5400.

Those are the levels to watch and I tend to think that any move inside of that is noise.

The bearish argument for gold is:

• A strong US dollar
• Fewer rate cuts coming (now just 22 bps of easing priced in)
• Higher Treasury yields
• A thinning out of crowded positions due to geopolitical uncertainty
• Gold is overbought (thought less-so than a few months ago)
• The seasonals soften after February

The bullish argument is:

• The global order is breaking down
• Inflation and war will lead to more turmoil
• US adversaries see Trump as more-likely to turn to force and/or weaponize the currency
• Tariffs continue (more investigations announced late yesterday)
• The trend is your friend

The big move in gold kicked off at the start of this decade due to runaway fiscal spending and ultra-low rates after covid. The market sensed that would end badly and it ended in high inflation, while deficits in the US continue to run very high with no end in sight. The move was supercharged by the war in Ukraine and, specifically, the US-led decision to confiscate Russia’s foreign reserves. Since then, China and others started turning to gold instead. Tariffs further emphasized shift, as it threatened to destroy alliances and relationships.

How does the war in Iran affect that? It certainly doesn’t make it better. This war will end but it won’t be forgotten and the big potential event of the next few years is likely to be some kind of China-Taiwan conflict. It’s tough to say how the US will react in that situation but if I were China, I would want to minimize my exposure and that’s exactly what they’re doing.

For now, gold has sagged on the conflict due to a general de-leveraging and that’s typical. Just before the bombs, it was creeping up towards the highs of the year. Once the dust settles, the focus will get back to all the things that have boosted gold.

Also note that one-year inflation breakevens are now at the highest they’ve been since the pandemic at 4.7%.