Higher real yields and stronger US dollar weigh on gold as Trump puts Iran deal in jeopardy

Gold extended the losses yesterday after Trump stated on Truth Social that the US does not need a deal with Iran and directed Vice President Vance to focus on domestic matters.

The US dollar and Treasury yields jumped following his remarks, while oil prices extended the gains, fuelling inflation concerns and expectations of additional rate hikes.

There’s clearly strong downward pressure at the moment amid the hawkish repricing, higher real yields and stronger US dollar.

Looking ahead, I would expect rate hikes to start putting significant downward pressure on the stock market and long-term Treasury yields amid increased growth concerns given the longer than expected US-Iran tensions.

I think that in the current context, if Trump decides to escalate things with Iran, inflation expectations would rise alongside a weakening growth outlook, creating a stagflationary environment.

At the same time, if we get a de-escalation, we could see a dovish repricing on easing inflation concerns, which should also support gold in the short-term.

There are certainly strong headwinds for gold, so these fundamental views will need to be paired with technicals for a confirmation of a change in momentum.

On the daily chart, we can see that gold (CFD contract) extended the selloff into the key 3,885 support zone where we have also the major upward trendline for confluence.

The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 3,500 level next.