Oil has been thrust back into the spotlight as the negative catalyst for markets. The events over the weekend highlight just how fragile the Middle East is and how it will shape global trading in the second half of 2025.Putting Iran in an oil-specific perspective, despite rising geopolitical tensions, the potential for sustained disruptions to energy supply appears limited for now. This is backed by historical data seen in April, June, and October last year, where heightened risk didn't translate into prolonged price surges.There are absolutely geopolitical concerns around Iranian retaliation, coupled with Israeli retaliation, and so on. But the likelihood of strikes on regional energy infrastructure appears low.Iran’s relationships with Gulf nations have improved markedly, reducing the risk of hostile action toward their oil operations. This has been led by Saudi Arabia, which will be strong in ensuring no disruption to global oil supplies. The caveat is if Iran decides to go at it alone and block the Strait of Hormuz, which would severely impact the likes of Bahrain, Qatar, the UAE, Kuwait, and Iraq. This appears unlikely, but a risk we need to be aware of.

Where does diplomacy sit?

Expectations are for tensions to spike in the short term. However, that will likely lead to renewed diplomatic engagement, particularly if the alternatives prove economically or strategically untenable (i.e., long-term war, regime changes, civil unrest). That's the long term; the near-term resolution is the concern. The United States and the greater regions of Europe and Asia will be brought in. We know that the President has a very high preference for low oil prices as a major part of his election campaign. With no signs, demand is likely to collapse. The only way to keep prices down on this escalation is to ramp up supply. The catch is that US producers remain very reluctant to ramp up supply at current prices. OPEC and Saudi Arabia have already moved to increase production to stamp out non-OPEC members on price, and Russia is still a global pariah with its war with Ukraine. So the supply lever is going to be tricky.

So, what about pricing?

Energy price volatility is being closely tied to positioning in the futures market. Historical patterns show a strong correlation between net longs and Brent pricing.If we speculate that short positions were to be fully unwound (from 187k lots to zero), the implied move could be around $14 per barrel. Brent recently hit $65 per barrel before the conflict and spiked to an intraday high of $78.5 per barrel on the news breaking. This reflects the type of technical squeezes we can expect. Sustained gains would then require fresh long positioning.

Summary

The market remains focused on how Iran and Israel might respond further, and whether any escalation might target energy infrastructure directly. Meanwhile, the U.S. continues to signal interest in keeping diplomatic channels open. Unless Iran decides to go against all expectations and independently block the Strait of Hormuz, we can expect heightened volatility in the short term, without any prolonged surge — similar to the patterns we saw during heightened tensions throughout last year.

In the words of Bjork’ 90s indie hit “Oh So Quiet” –It's, oh, so quiet Shhhh, Shhhh, It's, oh, so still Shhhh, Shhhh, You're all alone Shhh, Shhh And so peaceful until…Until… that is the question, and considering it is ‘peaceful’, it's probably best to review the minutes from the Fed as it is signalling that the quiet time is not far from ending soon.FOMC: The Pressure BuildsThe May 6^th to 7th Federal Open Market Committee (FOMC) minutes reaffirmed the Fed’s cautious stance, with Chair Powell keeping to the “wait and see” script. But under the surface, the outlook has become more complicated as event risk is getting louder.Clearly, Trump’s Tariffs have created new complications for the Fed’s dual mandate.As the minutes note:“With uncertainty higher due to ‘larger and broader’ than expected tariffs, the Committee may ultimately face a more difficult trade-off between its price stability and full employment mandates.”And this was well before the Trade Court’s decision that the Liberation Day tariffs are illegal under the Economic Emergency Act of 1977, and then it was subsequently overturned 24 hours later by the appeals court.The Fed has flagged increased downside risk to real activity and now sees the probability of recession as nearly equal to its baseline forecast. At the same time, inflation risks for 2025 have been revised upward, though longer-term projections remain skewed to the upside, particularly as inflation expectations creep higher.Seen in these quotes from the minutes:“The staff continued to view the risks around the inflation forecast as skewed to the upside, with recent increases in some measures of inflation expectations raising the possibility that inflation would prove to be more persistent than the baseline projection assumed.”“Many participants reported that firms planned to partially or fully pass on tariff-related cost increases.”To paraphrase Milton Friedman, “Tariffs are not a tax on the sovereign, they are a tax on the consumer.” And this is what is being missed by government officials and the President himself.A counterargument to higher cost is that Fed officials suggested there is a chance of weakening demand, lower immigration driven housing inflation, and competitive pricing tactics. Which would feed back into the risk of recession as mentioned above, and signal that the US is entering a new stagflation era.Seen here:“Several argued that there might be less inflationary pressure for reasons such as reductions of tariff increases from ongoing trade negotiations, less tolerance for price increases by households, a weakening of the economy, reduced housing inflation pressures from lower immigration, or a desire by some firms to increase market share rather than raise prices.”On employment, the labour market remains tight but is potentially vulnerable to hiring pauses as policy and trade risks weigh.“The labour market was seen as ‘broadly in balance’ and the unemployment rate as ‘low.’”“Participants were concerned that tariff uncertainty could lead to a pause in hiring and the labour market to soften in the coming months.”Financial market signals were mixed. Several participants noted an unusual pattern: long-term Treasury yields rose even as the dollar weakened and equities sold off, raising concerns about shifting correlations and safe-haven perceptions.“Some participants commented on a change from the typical pattern... with longer-term Treasury yields rising and the dollar depreciating despite the decline in the prices of equities and other risky assets... [noting] that a durable shift... could have long-lasting implications for the economy.”Monetary framework discussions continue as well. The Fed appears to be reconsidering its post-COVID commitment to flexible average inflation targeting (FAIT). The minutes state:“Participants indicated that they thought it would be appropriate to reconsider the average inflation-targeting language in the Statement on Longer-Run Goals and Monetary Policy Strategy.”An interesting development is putting more rigidity into the mandate currently, suggesting the Fed is looking to ‘safeguard’ policy changes from external political forces.Where does this leave the US and the Fed in the short term? Don’t expect any near-term policy change, but the longer the Fed delays, the steeper the eventual rate cuts may need to be as the risks of a tariff-induced recession lead to the monetary brake being released.The consensus is that by January 2026, a possible 125 basis point will come out of the Federal funds rate, some even are forecasting 175 due to the need to stimulate the economy rather than restrict it. The consensus figure would see the Federal Funds rate landing on the terminal rate of 3.00% to 3.25%, the unknown is when, the size and velocity of reaching this point will be.It is oh so quiet, but it won’t be for long if the Fed is anything to go by.

We want to point out some interesting statistics that have us asking, Are we in a blue sky world or a cruel joke?Since the April 7^th intraday lows, equities have done some astonishing things. The S&P 500 is now up 22% from that low. On April 8^th, the S&P was down 15% year to date, yet it took just 25 trades from that closing low to reverse all that loss. The last time that happened was 1982 – a year the S&P went on to rally hard, and even in the preceding years before smacking into the 1987 bear crash.So are we in the blue sky?Well, currently, global equity markets are showing signs of near-term consolidation, but beneath the surface, a shift in sentiment is underway. The recent de-escalation in global trade tensions, especially from the U.S., is prompting investors to start pricing in this “Blue Sky” scenario in equities; however, it is not materialising in bonds.This is also a faint appearance of a bubble, driven by investor enthusiasm around AI and the potential for looser monetary policy later in the year. Blue Sky thinking does lead to this - markets need this goldilocks scenario and appear to think that is going to be the path rather than the exception.The realistic path is a near-term outlook that remains complex and, in some areas, fragile, in others already breaking.The Cracks While some indicators have improved, others reveal underlying softness.Take earnings revisions and/or lack of guidance altogether. The 4-week moving average for U.S. earnings revisions has seen a modest lift, but that is in no small part due to the weak U.S. dollar. The more significant 13-week moving average tells a different story.This longer-term gauge, both in the U.S. and globally, continues to lag, primarily because it trails the reporting cycle. For now, markets are clinging to hopes of an imminent turnaround in corporate earnings, but the data suggests that’s unlikely in the short run.Adding to the caution, U.S. GDP growth is forecast to slow significantly, dropping from 2% year-over-year in Q1 to less than 1% by Q4. Look at auto sales, currently booming, back the consumer feedback is that this is due to ‘tariff beating’. If that is the case, come Q3 and Q4, there is going to be a collapse in sales as the price increases come in and consumers go on strike.The FedThe Federal Reserve is now expected to stay on hold until September, according to current market pricing, and that is post-the PPI and other inflation input measures that came in lower than expected, leading equities to assume it could be earlier.Yes, the Fed is nearing the end of its tightening cycle, but a cautious tone and concerns of stagflation signal that policy normalisation will be slow, deliberate and data dependent, not sentiment driven or on geopolitics.This measured approach will be a double-edged sword; it will have opportunities for some but also elevate the risk of market volatility around key data releases, including inflation, labour market trends, and consumer spending.Tariff paths of resistance

• Path one: Moderation – consensus has a 50% blanket tariff on Chinese imports to coming into effect post-90 day pause with a 10% sector-specific measures globally – meaning the 25% tariffs on steel and aluminium will be cut to 10% and pharmaceutical which are yet to be hit will have a blanket 10%. This would lead to a moderation of the current buying in equities.
• Path two: This is the more optimistic path. If the recent tariff announcements are primarily negotiating tools rather than enduring policy shifts, markets could reprice upward. A more conciliatory tone on trade, especially ahead of the U.S. mid-term election, could reduce uncertainty and support a rerating of equities, as mentioned, this is what appears to be priced in by equities but not bonds.
• Path three: Bubble, this scenario can’t be dismissed. If investors become overly optimistic, buoyed by AI-driven gains, rate-cut speculation, and financial conditions that loosen too quickly, markets could overshoot fundamentals, reviving concerns of a speculative bubble.

The Good: UpsideSeveral forces could support further upside. Generative AI continues to be a structural driver, both in terms of productivity gains and equity multiples. Inflation is also expected to moderate. Consensus has U.S. inflation falling to 3.9% by year-end, giving the Fed cover to start easing at that September meeting. A fall in inflation, combined with improving real wage growth, could support consumer spending and corporate margins.Wage growth remains a positive offset to macro headwinds. The U.S. voluntary quit rate is still elevated, and wage gains are holding steady around 3.5%. This is helping to stabilise corporate profit margins and close the gap between labour cost growth and productivity.If this dynamic continues, particularly with inflation trending lower, it would strengthen the case for a supportive rate-cutting cycle. All market upsides.The Bad: DownsidesYet risks remain—and they are not trivial.Trade policy remains the most significant near-term overhang. With the U.S. mid-term election on the horizon, the direction of global trade remains unpredictable. Whether tariffs become a core policy plank or merely a short-term lever will shape investor sentiment through the second half of the year.Macro data surprises, particularly around inflation, labour markets, and corporate earnings, could also spark renewed volatility. At the same time, central bank missteps or unexpected geopolitical developments (of which there could be many) could easily upset the fragile equilibrium in markets.The Outlook: Is it ugly?The U.S. is expected to maintain its leadership position, but market breadth is improving. The dominance of a handful of mega-cap names is beginning to fade, and sector rotation is creating new opportunities across geographies and industries. See reactions in Europe and Asia.Meanwhile, AI continues to disrupt the investment landscape. Algorithmic trading, real-time sentiment analysis, and personalised investment models are reshaping how capital is allocated and how fast markets react. This can lead to asymmetrical trading and disparities between fundamentals, technicals and actuals.So it’s a little ugly, but that is the new world.

Investors globally and domestically are stuck in this weird holding pattern. We are all clearly waiting for more definitive signals on the direction of tariffs and broader policy settings, and despite US-China trade talks, we would argue this is news for news' sake – it is not fact. This uncertainty is casting a long shadow over the market, but you wouldn’t know it; the recent volatility has all but reversed equity losses.Beneath the surface, several important trends are shaping the outlook, particularly around the movement of prices for both commodities and consumer goods. For example, look at how local retailers respond with their own pricing strategies to deal with the ‘new trade order’. At the same time, expectations around index rebalancing are adding another layer of complexity, with market participants closely watching which companies might move in or out of major indices in the coming months as geopolitics and the digital age move weightings around.Investors are acutely aware that the next major move will likely be dictated by policy announcements, which could come at any moment and in any form, and so are scrutinising every development for clues.First - In this environment, we are very mindful of oil, any second-order effects that lower oil prices as a traded commodity and at the petrol pump, could have on the broader economy for Australia and, by extension, our China-linked economy. A deal between the US and China, but also Russia and Ukraine, would be huge for oil.Second, there is also an ongoing debate about whether the Australian economy and local equity markets will see any real benefit from a period of goods disinflation, or whether the impact will be more limited than some expect.Looking ahead to the June 2025 index review, expectations are that the level of change will be more subdued compared to what was seen in March. The most significant adjustment on the horizon is the likely addition of REA Group to the S&P/ASX 50 Index, replacing Pilbara Metals. Beyond that, Viva Energy is currently positioned within the 100–200 range and could move up if conditions are right, while Nick Scali is well placed to enter the 200 should a spot become available, and in a rate-cutting environment, consumer discretionary is going to be interesting. The June rebalance is due to be announced on June 6 and implemented on June 20, so there’s plenty of anticipation building as investors position themselves ahead of these changes.Zooming out to the macroeconomic front, several catalysts are likely to shape the market narrative in the weeks ahead.Consumer and business sentiment, first-quarter wage growth, and the April labour force data are all in sharp focus this week and next. The expectation is that consumer sentiment will have continued to decline in May, extending the broader deterioration that’s been in place since the US tariff announcements. Business surveys for April show that both confidence and conditions are holding steady, tracking above their long-run averages.Turning to Wednesdays, Wage index growth is expected to have accelerated in the first quarter, with forecasts pointing to a 0.8% increase quarter-on-quarter and a 3.9% rise year-on-year. This acceleration is being driven by a combination of ongoing tightness in the labour market, stronger enterprise bargaining agreements, and legislated increases in childcare wages.Thursday’s labour force data for April is expected to show 40,000 jobs added, with the unemployment rate holding steady at 4.1%. A slight uptick in participation to 66.9% is also anticipated, reflecting the ongoing strength of the jobs market.In the housing sector, the latest data is less encouraging. Building approvals fell by 8.8% in March, with a 13.4% drop in house approvals. These figures are weaker than both market and consensus expectations, and the annualised rate has now fallen to 160,000. This points to ongoing challenges in the construction sector and raises questions about the sustainability of the housing market recovery. This will bring the RBA and the newly elected Federal government into sharp focus – action is needed, but what that looks like is hard to define.Commodities markets have also seen significant movement, with oil prices dropping below US$60 per barrel, the lowest point since early 2021. This has brought OPEC into sharp focus. The crux question is whether OPEC will attempt to chase prices lower or instead move to stabilise the market. So far, they have pushed prices with deliberate oversupply to punish certain nations – this, however, is unsustainable and will have to change soonCouple this with weaker demand from Asia, and a volatile US dollar is also playing a role, with Brent crude now trading at $55 per barrel. These developments are feeding into broader concerns about global growth and the outlook for commodity exporters.Looking at the local currency and AUD has shown remarkable resilience, supported by a meaningful improvement in the country’s energy trade balance and a weaker US dollar. However, the next major test for the currency will come with the release of the US CPI data on Wednesday, which could set the tone for global markets in the near term – is the Fed out of the market in 2025? This will impact the USD.Looking at the globe, the market and financial landscape is still navigating a complex web of challenges, with persistent inflation, potential tariff implementations, and evolving economic dynamics all in play.Market participants are increasingly focused on how these factors interact and influence everything from consumer pricing to investment strategies. Central bank decisions, especially from the Federal Reserve, have been pivotal in moderating market sentiment, while ongoing discussions about trade policy continue to reshape the global economic environment. Tariffs, in particular, are forcing companies to rethink their supply chains. You only must look at the US reporting season and the likes of Ford, GM, Nike and the like, all scrapping forward guidance and highlighting the impact tariffs are having on cost. The second event that is now becoming ‘actual is that the higher input costs are often now being passed on to consumers. The broader issue here is that this can reduce household disposable income and slow broader economic growth.So, although the excitement of early April has subsided, it's only a social media release away. That means that we as investors are navigating a period of heightened uncertainty, with every policy announcement, economic data release, and market move being scrutinised harder than normal as we look for what it might signal about the path ahead.The interplay between inflation, tariffs, and shifting economic dynamics means that flexibility and vigilance will be essential for anyone looking to make sense of the current environment and position themselves for what comes next.

It has been over 21 days since ‘Liberation Day’ – since then, the forest of chaos ensued as lead investors, traders, and the full gamut of financial participants lost sight of where we stand.Not surprising when you look at the reporting versus the market. The chaos has led to mass loss of confidence from both the consumer and business side, spending intentions have plummeted and ‘American Exceptionalism’ is ‘ending’ depending on your point of view – this is what’s being reported.The market, however, has had other ideas – since Liberation Day, most have gone a full 360-degree round trip and moreAUD/USD

NZD/USD

Equities, too, have done some staggering reversals of fortune. Outside of China and the US markets, most major indices are either at or near breakeven. We are talking about the likes of Canada, the UK, Australia, most of Europe, Japan, South Korea, Australia, New Zealand and take Mexico, one of the hardest hit nations in the new tariff order – it's up 6.4% since Liberation Day.So, can we see the forest from the trees? Or should that be the trees from the forest?We need to drill down to one player, and for that, we want to concentrate on Australia, as the chaos from Washington has clearly consumed everything and led to a loss of reality.So, where does Australia sit? Well, it entered 2025 with solid economic momentum. Fourth-quarter GDP figures surprised to the upside, inflation appeared to be bending back toward the RBA’s target band, and consumer sentiment was on the mend until Liberation Day. Domestically, the data painted a picture of a soft landing: one where inflation was moderating without significantly damaging the labour market or derailing growth. Happy days if you are running the RBA.And despite Liberation Day’s disruptions, Australia’s fundamentals overall remain largely intact.Capacity utilisation has begun to ease, labour markets are still tight, though the participation rate has slipped, and headline inflation pressures have eased thanks to falling import costs and policy-driven subsidies (which is not a good thing but has helped). Core inflation, too, is easing thanks to lower inputs from the likes of rents, household and personal services and financial services, but as yet has not cracked the RBA’s target band.Overall, the economy continues to expand, although modestly and forecasts for 2025 and 2026 have been downgraded as the outlook is becoming more finely balanced.One thing to keep in mind, too, is that Australia may even benefit from some aspects of the shifting global trade environment, particularly if supply chains are redirected away from the U.S., leading to cheaper goods and a further softening of import-driven inflation that Australia is heavily exposed to.A Deliberate Easing Cycle We background all this to give colour to an interesting trade development that has been lost in the chaos. RBA rate pricing.First things first – the consensus for the RBA cash rate is that by Christmas this year, the cash rate will fall to 3.1% - previous consensus was 3.6% - that’s a full 100 basis points (bps) out of the cash rate from this point in time.What significantly differs is the timing and size of cuts to reach the 3.1%.The RBA has already taken the first step with a February cut, which it framed “not as the beginning of a cycle but rather as a reversal of its precautionary hike in November 2023”.So, February was just a ‘righting’ of the ship. Where now? With inflation continuing to moderate and global uncertainty mounting, the case for additional easing is building—albeit cautiously.Inflation data supports this slower, data-dependent approach and having now seen and heard Michele Bullock in action for over 18 months, this is likely to be the most probable course of action.Real-time estimates for the first quarter trimmed-mean CPI due on the 30^th of April sit at 0.6%, quarter-on-quarter and 2.8% for the year-on-year figure, which would mark the first time core inflation has been in the RBA’s target band since 2021.Housing inflation has continued to decelerate—likely a sustained trend through 2025—and extended electricity bill subsidies are expected to further soften headline numbers. At the current trajectory, consensus has inflation ending 2026 around 2.6%, firmly within the RBA’s target range. All positive news for an RBA cutting cycle.However, this is where the divergence is building – the inflation story is leading to a large front-loading of rate cuts. We know the RBA is prepared to act, but it remains wary of providing strong forward guidance. The minutes from the April meeting reaffirmed the Board’s concern over sticky unit labour costs—an issue exacerbated by weak productivity. Subsequent public remarks from the Governor and Deputy Governor stressed a cautious, reactive stance, as well as keeping some powder dry if the uncertainty leads to even larger issues. But a 50bps cut at the 20 May meeting looks to be an upside move.This will be interesting for the likes of the AUD, although it has rallied hard against the USD, like all other major currencies have. Against the likes of the EUR and GBP, it has clearly been priced on global risk, yes, but also the prospect of a large cut on 20 May.We caution this view. Why? The upcoming May 3 election has added another layer of complexity. Both major political parties have pledged significant increases in public spending across sectors such as healthcare, housing, aged care, and defence. The most recent pre-election Budget included modest tax cuts and extensions to electricity subsidies. The opposition has flagged further tax relief, including a potential cut to fuel excise as well as major support for home ownership through subsidies.These promises imply wider deficits and a rising debt load regardless of who forms the government. With no meaningful supply-side reforms on the table, Australia's fiscal trajectory is skewing looser.That ‘assistance’ is likely to stay the hand of the RBA from a shock cut for a more restrained 25bps cut. This is in keeping with the ‘narrow path’ it still uses for justification, balancing the need to support domestic sentiment and inflation targeting with caution around external volatility and fiscal expansion.Thus, we believe a more measured path is likely – this being 4 25bps cut meetings. Most likely being May, August, September and November. This is likely to see the AUD jumping from time to time due to overly bearish rate-cutting viewpoints.The forest is there – we just need to look in the right places and ignore the blowing breeze through the trees.

Why Is Gold in Focus Right Now?Throughout early 2025, gold has surged to record highs, breaching $3,400 an ounce for the first time in history. For newer traders, this may seem like a “blue-sky” breakout without precedent. For experienced market participants, it raises a more practical and important question, i.e. what is driving this rally, and is it sustainable?Understanding the fundamental and technical context behind such moves helps us not only trade the present but plan for what may come next, which can guide us in the decisions we make with our trading action.This article aims to build upon recent outlook webinars that we have delivered recently, which have waved the bullish flag throughout. However, I must admit to having been surprised at the velocity of the rally.We will try to unpick key drivers as well as analyse what could be next and why.What’s Driving the Gold Rally in 2025?Let’s take a look at the main contributing factors that are currently supporting the upward momentum in gold prices:1. Rising Global Uncertainty and Geopolitical RiskPolitical instability, as it has historically, remains a strong macro backdrop for gold. Recent flare-ups in geopolitical conflict — particularly in Eastern Europe and the Middle East — have returned “safe haven” flows back into focus. This is typical during periods when traditional risk assets like equities face greater downside volatility.Additionally, the somewhat turbulent start (even more so than many predicted) to the new U.S. administration has introduced an element of policy uncertainty, particularly around trade, inflation and the impact of economic growth. The possibility of further tariffs or fiscal tightening reinforces gold’s appeal as a form of protection.Key Point: Traders need to monitor not just existing conflicts, but also the market perception of risk. Gold often responds not to what is happening, but to what investors fear might happen.2. US V China – trade war brewing?Tariff dramas have been the major market chatter and sentiment changer over the last few weeks. On top of general broad international tariffs, and to pause or not to pause decisions, the major attention is, and likely to continue to be, the escalation of tariffs between the U.S. and China has pushed inflation expectations higher. While inflation has generally cooled since its 2022–2023 peaks, cost-push factors such as tariffs can reintroduce price pressures, particularly on imports.Central banks globally are including tariffs within a rate decision narrative, but no central bank is more in focus, of course, than the Federal Reserve. In Trump's last presidency, the current Fed chairman Jerome Powell came under fire for rate policy, and already, it was noteworthy that the current president aimed a shot at him once again. The market is aware that inflationary shocks are not off the table once tariff impact starts to bite at importer costs in the US, and the “priced in” rate cut that is likely to occur in June is still some time away, and the certainty that this may happen may start to waver. Gold has historically performed well when real yields (interest rates adjusted for inflation) fall or remain negative.Key Point: Watch CPI data closely. If inflation expectations start to climb again due to trade-related costs, gold may continue to benefit.3. U.S. Dollar WeaknessThe U.S. dollar index (DXY) has declined to multi-year lows, making gold more attractive to non-U.S. investors. This is a classic inverse relationship — as the dollar falls, gold often rises.A weaker dollar could potentially indicating that the market could be pricing in a more dovish Federal Reserve, with rate cuts potentially on the table later in the year, However, more likely in this case, the dramatic drop in the USD, which this week hit 3 year lows, is more likely due to concerns about growth and even the perceived chance of recession.At the time of writing, the earnings season is ramping up, and despite Q1 results so far being relatively positive, we are already seeing concerns expressed (as is often the case with uncertainty) relating to forward guidance. This, of course, plays into the slowdown narrative. This week's PMI data feels as though it may have even more importance than usual.Key Point: Gold traders should always include USD direction in their macro framework. It often amplifies or suppresses broader trends in the metal.4. Central Bank and Institutional DemandAnother major support for gold is the persistent demand from central banks, particularly in emerging markets such as China and Turkey. These institutions are increasingly shifting reserves into gold as part of long-term diversification away from USD assets.Evidence suggests ETF flows have also picked up, showing increasing but not outrageous levels, suggesting the move is still institutional in nature rather than purely speculative.Key Point: As long as institutional and central bank demand remains steady or rising, gold has a structural reason to be supported underneath current price levels.What the Technical Picture Is Telling UsWhile fundamental drivers continue to support gold, the technical setup also tells an important story — one that can help traders decide whether to stay in, take partial profits, or prepare for tactical re-entries after any price pullback. Let’s explore the technical picture in a bit more detail.

• Gold’s Long-Term Trend Structure Remains Intact

Gold has been making a consistent series of higher highs and higher lows since mid-2023. This trend has been confirmed across multiple timeframes, including the daily and weekly charts — an important feature for position traders.Currently, price is well above both the 50-day and 200-day exponential moving averages (EMA), which have now turned upward and widened — a classic sign of trend strength and directional bias. When prices pull back in strong trends, these EMAs often serve as dynamic support levels.

• Momentum: The weekly RSI is elevated (above 75), which suggests gold may be in overbought territory in the short term.

What About RSI Being Overbought?One of the most common misunderstandings among newer traders is how to interpret an elevated RSI (Relative Strength Index), particularly when it crosses above the traditional 70 level.RSI above 70 does not automatically mean 'sell' — especially in strong trends, so this merits a little further discussion.Here’s why a high RSI may not be a problem:

1. Context matters: In trending markets, RSI can remain elevated (above 70 or even 80) for extended periods without any meaningful pullback. This is often referred to as a 'momentum breakout' condition.
2. Confirmation from volume: If rising RSI is accompanied by increased volume, it suggests that momentum is being supported by participation, not exhaustion. Currently, weekly volume has expanded on breakout weeks, supporting the move.
3. New highs with RSI > 70 are actually bullish: A strong market making new highs and registering overbought readings usually reflects strength, not vulnerability — unless divergence begins to appear.

Key Point: Use RSI as a momentum gauge, not a reversal trigger in isolation. In this case, RSI supports the idea that gold is strong, not yet stretched to the point of reversal.

• Next Targets: Many technical analysts are watching $3,500 and $3,650 as key psychological and Fibonacci extension levels. A sustained break above $3,400 would likely bring these into view.
• Support Levels: If price retraces, $3,200 and $3,050 are likely areas where buyers may step back in, especially if the macro story remains intact.Key Point: Momentum remains strong, but even in trending markets, corrections are normal. Having a plan for where to re-engage is just as important as knowing when to stay out.
• What Would a Healthy Pullback Look Like?

Even the strongest trends pause. If gold does retrace in the short term, the nature of the pullback is more important than whether it happens.Signs of a healthy pullback include:- Controlled decline in decreasing volume- Price respecting prior breakout zones — e.g., $3,250–$3,280- Holding dynamic support like the 20-day or 50-day EMA- Reversal candle patterns near support (e.g., hammer, bullish engulfing)Key Point: In strong markets, pullbacks are often shallow and short-lived. They can be opportunities to scale in, provided the structure remains intact.Sentiment and Positioning: Are Traders Too Bullish?It’s important not to get swept up in price action alone. The COT (Commitments of Traders) report can provide valuable insight into whether markets are approaching overly crowded levels.

• Large Speculators have increased their net long positions, but not yet at levels seen in major historical peaks.
• Retail traders have only recently started to increase exposure, which suggests the move is not fully mature.
• ETF inflows, while rising, are still below the aggressive flows seen in 2020.Key Point: Current positioning suggests there may still be room to run, especially if new catalysts emerge. However, if positioning becomes too lopsided, be ready for faster and sharper corrections.

What Could Change the Narrative….Risks to Watch?Even with a strong bull case, traders must stay aware of what could derail gold’s momentum:Risk Event #1: Sudden USD reboundImpact on Gold: Could trigger a sharp pullbackRisk Event #2: Hawkish Fed surpriseImpact on Gold: Logically higher real yields = bearish gold due to USD impact – however, gold’s role as an inflation risk is likely to offset this.Risk Event #3: De-escalation of trade/geopolitical tensionsImpact on Gold: Safe-haven demand may soften if this is part of the reason for the current price rise. However, with other factors predominating price moves for right now, again, this may not be critical.Risk Event #4: Profit-taking and reversal in momentumImpact on Gold: Could create a short-term topKey Point: Risk doesn’t always mean reversal — but it does mean adjusting trade size, stops, and expectations when conditions change.Summary: Stay Informed, Stay DisciplinedGold’s rise in 2025 has been impressive, but it hasn’t been irrational. The macro backdrop, institutional support, and technical structure all support the trend.However, markets rarely move in straight lines, and traders should stay ready for both continuation and correction scenarios.Success is likely to lie in applying consistency in the management of profit and capital risks, as well as having a clear method to re-enter as appropriate. consistently while remaining adaptable to changing conditions.Traders should view the current gold move as a reflection of persistent macro themes and technical support rather than any sort of “bubble”. Whether you’re already long or waiting for a retracement, your decision-making should be rooted in having a clear and unambiguous trading plan and, of course, the discipline of follow-through in the actions you take.