Oil is down over 4.5% today. The USD Index is down as well. Gold is up a mere 0.09%.
That tells you more than everything else I could write combined.
When oil drops sharply, the channel that I’ve been covering for weeks now operates in reverse: inflation expectations ease, rate-cut hopes revive, the dollar weakens, and gold rallies. We've seen it work this way multiple times during the war. On April 17, oil crashed 10% and gold surged. On May 1, oil fell 5%, and gold popped. On May 6-7, oil dropped 8%, and gold rallied nearly 3%.
Today, oil dropped over 6% initially, and it’s down by a bit over 4.5% at the moment of writing these words. Gold barely moved. The channel gave gold a tailwind, and gold couldn't use it.
When an asset can't rally even when conditions favor it, the underlying direction is down. This is one of the oldest and most reliable signals in technical analysis, and it's playing out right now.
Gold simply doesn’t want to move higher here – it wants to decline further, and other markets confirm it.
After such a big decline on Friday, it would be natural for gold to rally back up in at least a moderate way – just like that, even without a tailwind. Instead, gold barely did anything despite the tailwind.
The same is the case with mining stocks (the GDXJ ETF) and silver (SLV). The breathers are tiny. Can a rally be bearish? Yes, it can, and today’s session is one of those cases. Another case would be a rally on very low volume, which is something that might be taking place today as well (we’ll know after the closing bell, when the volume data becomes available).
The sell signal from the Stochastic indicator is now crystal-clear for the GDXJ. That’s the same signal that we saw at the March and April tops.
The USD Index is declining somewhat, and it’s likely just a verification of the breakout. A breather before the USD Index soars again.
Crude oil declined today, and… It’s also likely just a quick breather. The Strait remains closed, and there’s little hope that it will reopen anytime soon. Even in case of peace between USA and Iran, it will take a long time before the ships can safely pass at any decent capacity. Let’s take a closer – fundamental – look.
What Happened Over the Weekend
A drone struck the UAE's Barakah Nuclear Energy Plant on Sunday. This is the first attack on a nuclear facility since the war began. Three drones entered from the western border. UAE air defenses intercepted two. The third hit an electrical generator outside the inner perimeter, starting a fire. No injuries. No radiological release. Unit 3 was switched to emergency diesel generators. The IAEA expressed "grave concern." Sheikh Abdullah bin Zayed condemned the "treacherous terrorist attack."
No one claimed responsibility. The drones came from the western border, raising questions about Houthi involvement from Yemen. The UAE hasn't formally blamed Iran, but Tehran has been striking the Emirates repeatedly since hostilities resumed this month.
Attacking nuclear infrastructure crosses a threshold. Barakah is the Arab world's only nuclear power plant, a $20 billion facility providing 25% of UAE electricity. Whether this was Iran, the Houthis, or someone else, the signal is clear: the conflict is intensifying, not winding down.
And gold is flat.
Trump posted after a call with Netanyahu: "the Clock is Ticking, and they better get moving, FAST, or there won't be anything left of them." Asian stocks fell overnight. Oil spiked to $111 on the threat. Then Monday happened and oil reversed, as it has after every Trump Sunday escalation.
On Thursday, a ship anchored off Fujairah was seized and taken toward Iran. A cargo ship near Oman was attacked and sank. The first ship sinking of the entire Strait crisis. Iran's senior VP Aref said the Strait "has always been our property" and Tehran would not give it up "at any price."
And gold is flat.
Beijing Produced Nothing
The Trump-Xi summit ended last week without any concrete progress toward reopening the Strait. Trump said contradictory things: first that the US "didn't need" the Strait open, then alongside Xi that "we want the straits open." China made no commitment to pressure Iran. No enforcement mechanism. No sanctions. No military contribution.
Iran recently (on May 5) established the "Persian Gulf Strait Authority”, a formal institution to authorize and regulate all maritime transit through the Strait. This is the permanent control framework becoming operational. It's no longer proposed legislation. It's an active institution with regulatory authority.
The frozen conflict continues. Day 79.
Why Gold Can't Rally
I've been writing about gold's failure to rally on geopolitical stress since mid-April. The "Worse for Gold Than Active War" framework explained it: the frozen conflict maintains the structural headwinds (oil, inflation, Fed, dollar) while removing the acute fear that drives safe-haven spikes.
Today adds a new layer. Gold isn't just failing to rally on geopolitical stress. It's failing to rally when the channel itself reverses in gold's favor. Oil down 4-6% is the most favorable single-day condition for gold in the current environment. Gold couldn't use it.
And if a given market really doesn’t want to move in one way, it indicates that it really wants to (and will) move in the opposite way. This means lower prices for gold, silver, and mining stocks (as well as other non-energy commodities) in the following weeks. It also means increasing profits from our positions.
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Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA