U.S.-Iran negotiations once again push down gold prices, market shifts to new trading logic

Ask AI · How will the US–Iran standoff reshape Wall Street trading strategies?

According to CCTV News, on May 10 local time, U.S. President Trump stated on social media that Iran’s response was “completely unacceptable.” According to Xinhua News Agency, U.S. Fox News Digital reported that on the 10th, a U.S. commercial ship was attacked by two Iranian drones in the Persian Gulf.

As a result, during the Asian trading session on May 11, international oil prices jumped by more than 3% on the day. As of 15:00 Beijing time, Brent crude oil futures were at $104 per barrel, while WTI crude oil futures were at $99 per barrel, with prices returning to the $100 mark during the session. London spot gold turned from gains to losses, trading at $4,675 per ounce, and hit a low of $4,647 per ounce during the session.

Repeated swings in negotiations recently have not only hit commodity prices, but have also fundamentally changed the logic of trading on Wall Street. The previously popular “TACO trade” (Trump Always Chickens Out—Trump will always back down) has made way for the “NACHO trade” (Not A Chance Hormuz Opens—there is absolutely no chance the Strait of Hormuz will open). The market is no longer betting that Trump will back down; instead, it is accepting the harsh reality that the Strait of Hormuz will remain closed long-term, making high oil prices the norm.

Institutional insiders believe that the market’s pessimistic expectations for Fed rate cuts have already been priced in to a considerable extent. After gold has undergone a deep adjustment, it is at a relatively low level. However, the continued back-and-forth progress of the US–Iran conflict, which has caused commodity prices to swing and rate-cut expectations to wobble, has left global investors utterly exhausted.

From TACO to NACHO, the trading logic shifts again

As the US–Iran conflict continues and passage through the Strait of Hormuz is repeatedly obstructed, the TACO trade logic has effectively failed, and NACHO has become the new trading logic on Wall Street. Investors increasingly treat interruptions to strait shipping as a “normal feature” of the macroeconomy rather than a temporary geopolitical shock.

Before this, every time Trump released negotiation signals, the market reflexively bet on “TACO”—that Trump would eventually back down and reach an agreement—causing oil prices to fall sharply.

An analyst at a foreign institutional market firm said that in the early phase of the conflict, markets were highly sensitive to peace talks news. Every rumor of diplomatic progress led to a significant pullback in oil prices, showing strong expectations that a quick solution would be reached. However, as the positions of both the U.S. and Iran hardened, these expectations kept coming up empty. The rise of the “NACHO” strategy means traders are giving up short-term “event-driven” thinking and instead incorporating the strait blockade as a persistent variable into their asset allocation models.

This is reflected in the pricing across multiple markets, including high oil prices becoming normalized, gold prices swinging sharply between $4,500 and $4,700, and worsening pessimism in interest-rate markets.

Since the conflict escalated in late February, the Strait of Hormuz has continued to face disruptions, with supply-demand gaps widening. Cumulative oil price gains have already exceeded 45%. In its latest research report, Citigroup warned that the market is underestimating both the potential duration of the Strait of Hormuz blockade and the tail risks associated with it. Although its base-case scenario still expects the blockade to ease significantly before the end of May, it also admitted that the difficulty of the U.S. and Iran reaching an agreement has increased the risk of a sharp rise in oil prices in the near term, maintaining a 0–3 month Brent expectation of $120 per barrel.

Gold continues to be a battleground of forces. According to the latest statistics from the U.S. Commodity Futures Trading Commission (CFTC), for the week ending May 5, 2026, COMEX gold futures long positions decreased by 1,570 contracts, or 0.49%, to 318,680 contracts. Reported short positions also decreased by 1,180 contracts, or 0.33%, to 354,312 contracts. Non-commercial net long positions increased by 3,732 contracts to 163,303, accounting for 44.4%.

In addition, the Fed’s expectation for rate cuts in 2026 has been pushed down from two before the conflict to the current zero. Using the CME “FedWatch” tool, the market believes there is a 92.8% probability that the Fed will keep rates unchanged through June. Major institutions including Barclays and Morgan Stanley have given up on forecasting rate cuts for this year.

Institutions debate gold’s overreaction and suppression

Gold’s current valuation is caught in a tug-of-war between geographic risk and monetary policy, and divergences among institutions’ research judgments are increasing.

Morgan Stanley, in a recent report, maintained its cautious forecast for gold prices at $5,200 per ounce by the end of 2026. It set this target price at $5,700 in early May. The reason for the significant cut is that this round of gold’s decline stems from a supply-side shock. Energy turmoil in the Middle East has pushed up oil prices. Against a backdrop where economic resilience remains, rising inflation has driven real interest rates higher. The classic negative correlation between gold and real rates has returned to normal.

State Street Global Investment, however, believes that after gold has undergone a deep adjustment, it is now in a relatively low position. If a peace agreement is reached, the Strait of Hormuz reopens, and oil prices continue to fall to $80 per barrel, gold could quickly break through $5,000 per ounce and ultimately test the $5,500 target again.

On the macro front, the U.S. nonfarm payrolls released on May 8 showed that April added 115,000 jobs, far above the market expectation of 65,000. With the labor force participation rate falling, the unemployment rate still edged up slightly to 4.34%. In its latest report, Zhang Yu, chief economist at Huachuang Securities, pointed out that due to a significant reduction in net immigration and a decline in the labor participation rate, U.S. breakeven employment growth has fallen to near zero. Low employment growth is no longer a strong signal of bad employment conditions; over the medium term, it may become another basis for rate-cut expectations beyond the “inflation gauge” indicator set by the Fed.

In addition, Guotai Junan Futures analyzed from the perspectives of geopolitics and central bank gold purchases, stating that China’s central bank has increased its gold holdings for 18 consecutive months. Global total gold demand in the first quarter reached 1,231 tons, with year-on-year growth of 74%. Combined with Guojin Securities’ judgment of structural opportunities for large energy state-owned enterprises and the chemical industry chain, the logic for long-term gold allocation still looks resilient.

On the demand side as well, structural differentiation is emerging. In a high gold price environment, investment demand is accelerating to replace consumption demand as the core driving force. In April, global physical gold ETFs recorded net inflows of $6.6 billion, and all regions achieved positive growth. Global gold ETF total assets under management increased 1% month-on-month to $615 billion, and holdings rebounded to 4,137 tons, nearing the historical peak. Data from the China Gold Association shows that in the first quarter, consumption of gold jewelry fell 37.1% year-on-year, while consumption of gold bars and gold coins rose 46.4% year-on-year.

Zhongtai Futures analysis suggests that as policy tightening expectations triggered by geopolitical factors gradually weaken, the logic behind gold pricing will return to four core main lines: safe-haven demand, reserve demand, allocation demand, and the impact of policy easing. It expects that over the next 3–6 months, the probability that international gold prices continue to trade on the strong side is relatively high.

(This article comes from Yicai)