Reversal of Fortunes for Stocks and Precious Metals

The final day of March delivered a day of opposites for financial markets. While most of the month was defined by risk aversion, the last trading session saw US equities stage a strong rebound from correction territory, oil and the Dollar posted losses, and gold and silver rallied. So, what drove the turnaround?

Investors latched onto messages from both US and Iranian officials suggesting an end to the war may be within sight. President Trump’s comments that the conflict could wrap up in another two or three weeks, combined with the Iranian President’s conditional willingness to end hostilities, helped ease some geopolitical tension and took pressure off oil prices.

Stocks rallied hard on de-escalation hopes, with the DJIA climbing over 1,100 points. However, with Brent crude still trading above $100 and WTI hovering near triple-digit territory, and the fate of the Strait of Hormuz remaining uncertain, it is unclear how far this enthusiasm can extend without a confirmed ceasefire or a more substantial pullback in crude. The fact that equities are rebounding while oil remains elevated tells us that the energy market remains far more sceptical about the prospects for a swift de-escalation in the Middle East.

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In FX, the Dollar Index (DXY) has pulled back below the 100 level on the marginal retreat in oil prices as March came to a close. Higher and more persistent oil prices above $100 raise the risk of stronger inflation, which could bring interest rate hikes back into play for the Fed later this year. Yesterday’s modest drop in oil helped settle those concerns somewhat and weighed on the greenback. Still, the DXY posted a solid monthly gain of around 2.5% in March, underlining that the Dollar has been the major currency that benefits most from elevated energy prices (with Brent having risen approximately 60% during the month).

The combination of falling oil, a weaker dollar, and attractive buying levels propelled gold higher on the final day of the quarter. Gold has pushed past $4700 (as of early Asian trading on Wednesday), making the most of the dollar’s slide and hopes that the US-Iran conflict may be winding down. While gold has been under pressure during this period of high oil and a stronger dollar since the conflict began (falling around 10% in March), a pathway back toward $5000 and beyond remains possible - but this would likely require larger pullbacks in both oil and the Dollar to ease inflationary concerns. Technical levels to watch include resistance around $4735 and $4800, while support awaits at $4440. Gold can stage a larger rebound, but should the war drag on beyond Trump’s stated 2–3 week timeline, or if oil and the Dollar climb again, the precious metal would quickly come under fresh pressure.

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