The global commodity market has been absolutely wild over the last few days. If you have been keeping an eye on the strait of hormuz, you already know that geopolitical tensions there suddenly cooled down. US president donald trump and Iranian president masoud pezeshkian just signed a peace agreement or MoU to finally end their conflict.
The impact on the market was instant. Three saudi flagged supertankers carrying a total of 6 million barrels of crude oil reportedly wasted no time sailing straight through the strait of hormuz right after the deal was signed. The naval blockade is officially over and shipping lanes there are free of charge for the next 60 days during this transition phase.
This peaceful sentiment did not just open the floodgates for crude oil. The latest updates show that LNG transport ships from energy giants like Qatar are also gearing up to restart their transits gradually after previously dropping by over 90% during the peak of the crisis.
Now this massive return of supply obviously sent a wave of panic selling through the futures market. Looking at the crude oil derivatives data, trading volume is incredibly packed. Binance is leading global liquidity by a mile with a trading volume reaching $620.29M and an Open Interest of $138.88M. Right below that we have tradeXYZ with $272.33M in volume followed by OKX at $77.16M.
Thanks to this mass sell off, oil prices dumped straight to around $74.80 per barrel or down about 1.46% in just a single day. As a result, the total Long positions blasted or Rekt in the last 24 hours reached $2.08M while liquidated Short positions were only at $598.37K. It is crystal clear that the Top Traders across these major exchanges are heavily coordinated in pushing sell positions.
"So what does this oil dump have to do with Gold price action?"
The macro logic is actually pretty simple. When global oil prices are cheap, energy costs drop and inflation cools down. This means central banks no longer have a solid reason to rush into aggressive rate hikes. Sure, when oil first drops, gold usually gets dragged down too because market panic fades away. But when gold becomes cheap, that is exactly where the game changes. Smart investors will instantly look at this as a golden opportunity to scoop up a prime safe haven asset at a major discount.
My Opinion
If we peek at the charts from a technical side, the market right now definitely looks scary and carries a short term crisis vibe for commodity holders because the downtrend is quite sharp. But if you are a long term investor, a setup like this is actually a beautiful vision to start scaling in and accumulating.
Technically on the Crude Oil chart, the price drop is currently heading toward a strong Support zone around the $66.35 - $64.40 area. Interestingly before it hits that green or demand zone, there is a price jump that left behind an empty gap or what we call a Fair value gap or FVG. Following smart money concepts or SMC rules, the market loves to drop back down to fill or mitigate that FVG area while sweeping liquidity below before finally bouncing back up in a healthy way. The recent peace news from the strait of hormuz is the perfect fundamental catalyst to wrap up this technical script.
Now let us break down the Gold chart. The market structure here looks incredibly attractive. After catching pressure from the oil drop, gold is currently holding inside a consolidation or sideways zone marked by the yellow box. This area acts as an initial support wall in the $4.026.000 - $3.966.200 range. Right beneath that yellow zone, there is still a massive demand order block or demand OB area sitting ready to absorb any further price drops.
The good vision here is the potential for a reversal moving forward. This sharp correction is giving us a great chance to go gold shopping at a low price. Once oil finds its absolute bottom in that Support area and the market remembers that other global economic uncertainties are far from over, money will start flowing right back into gold. The closest reversal target is chasing the upper FVG area and the next major Supply or Resistance zone which sits quite far above in the $5.050.000 - $4.960.720 range.
In conclusion, this current price drop crisis is just a market strategy to clear out liquidity. For those of us who can read market structure cleanly, oil targeting the lower FVG and gold trading at a discount is the absolute best momentum to cook up an entry strategy so we can maximize profits later.
Source
- Oil prices fall, stocks rally as US, Iran sign framework to end war
- LNG shipping through Strait of Hormuz poised for gradual restart
- Coin Bureau
Check out my latest Gold analysis
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