Gold Is Retreating Before a Possible Rally

Gold prices declined by 2.0% this week, retreating to around $3,370 per troy ounce. The pullback is largely a correction from last Friday’s sharp spike driven by escalating tensions in the Middle East. Talks between the U.S. and Iran over a potential nuclear agreement stalled on June 11, prompting gold to break above the key resistance zone at $3,330–3,350. U.S. President Donald Trump’s cryptic warning that “something would happen” preceded Israel’s airstrikes on Iranian military and nuclear sites early Friday. In response, gold surged to $3,446, the highest since April 22.

However, despite Iran's strong retaliation, gold was unable to breach the critical resistance zone of $3,430–3,450. This failure signaled exhaustion in the immediate rally. On Monday, gold fell by 1.5% to $3,384 amid renewed hopes of de-escalation, as S&P 500 futures recovered 1.1% of the losses caused by the strikes. Yet hopes quickly faded. No signs of a ceasefire or negotiations emerged. Instead, the exchange of attacks between Israel and Iran continued. Trump escalated the rhetoric, urging residents of Tehran to evacuate and calling for Iran’s unconditional surrender. He also convened a National Security Council meeting — a move often signaling preparation for major military action.

The market is now in a holding pattern, waiting to see how Washington will proceed. Trump claimed Iran was just weeks away from obtaining nuclear weapons, while U.S. intelligence officials contradicted this, stating there was no evidence Tehran was actively developing them. Trump also mentioned that Iran had expressed willingness to engage in talks in Washington — a claim Iranian UN representatives swiftly denied.

The stakes are high. Should Trump opt for direct U.S. strikes on Iranian nuclear sites, Iran may retaliate by closing the Strait of Hormuz, a strategic chokepoint that handles over 20% of global oil and LNG shipments. Even a brief blockade could send Brent crude prices surging past $100 per barrel, sparking inflationary pressure, dragging down equity markets, and potentially triggering a global recession in 2025. From a purely economic standpoint, such a move would appear irrational, something investors seem to agree on, as reflected in the pullback in gold prices.

Still, large investor positioning tells a different story. Despite the correction, large players continue buying aggressively. Net inflows into SPDR Gold Trust (GLD) hit $426.1 million two weeks ago, followed by $711.0 million last week and an additional $596.5 million this week. These consistent inflows suggest that institutional investors are positioning for further upside, likely preparing for a worst-case geopolitical scenario.

From a macroeconomic perspective, the backdrop does not clearly support a gold rally. U.S. inflation remains moderate, the economy is slowing, and the Federal Reserve (Fed) has signaled it is not ready to resume rate cuts—at least not during the summer. The Fed also warned that inflation could rise in the coming months, especially as oil prices have already jumped 22% since early June, making that outlook more likely.

Technically, the picture remains fragile. Gold still points toward a decline to the $3,030–3,050 range, but this scenario would require a decisive break below the $3,330–3,350 support level. For now, the risk of further escalation in the Middle East is preventing this bearish scenario from unfolding. Conversely, if the U.S. proceeds with military action against Iran, a break above resistance at $3,430–3,450 becomes highly likely, opening the door for gold to challenge its all-time high at $3,499 per ounce.