Are oil and gold positioning for a prolonged risk cycle?

It’s not just traders who are feeling the jitters. Oil and gold are starting to behave like the world is bracing for something more than a short-lived wobble, according to analysts. Rising prices in both markets are sending a clear signal: global uncertainty is back on centre stage, and investors are starting to take risk seriously again. 

With Middle East tensions flaring, macroeconomic anxiety building, and the U.S. dollar faltering after a credit rating downgrade, commodities are doing what they do best - reacting before the rest of the market catches up.

But here’s the interesting part. Reports say while oil is climbing on fears of disrupted supply, gold is moving on financial unease and a weakening dollar. It’s not one simple story,  it’s two converging narratives that suggest markets could be entering a prolonged risk cycle, where tension becomes the norm and defensive positioning takes the lead.

Oil’s new risk premium

Oil markets are once again sensitive to headlines - and not the kind anyone wants. Brent and U.S. crude futures both surged after reports emerged that Israel may be preparing to strike Iranian nuclear facilities. While there’s no confirmed timeline or decision, just the possibility of such a move is enough to shake energy markets. Iran, after all, is OPEC’s third-largest producer and any military escalation involving it could spill over into the broader region.

There’s also the Strait of Hormuz to consider - that slim stretch of water through which roughly 20% of the world’s oil flows. If Iran were to retaliate or attempt to block this vital route, the knock-on effects on global supply would be immediate. Suddenly, the risk isn’t just hypothetical - it’s physical.

And yet, on the surface, the data looks oddly stable. U.S. crude inventories rose by 2.5 million barrels in the week ending 16 May, suggesting supply isn’t tight just yet. But dig a little deeper and the picture shifts. Gasoline inventories fell by 3.2 million barrels, while distillates, used in diesel and heating oil, dropped by 1.4 million. 

Cushing, Oklahoma, the key delivery hub for U.S. futures, saw another drawdown too. So while oil is technically available, the composition of those inventories points to a market that’s not nearly as relaxed as the headline figures suggest.

This is what makes oil’s recent rally so compelling. It’s not about a supply crunch now - it’s about what could happen next. Markets are once again adding a risk premium for geopolitical tension, something we hadn’t seen in full force since early 2022.

Gold price outlook brightens amid dollar weakness

Gold, on the other hand, is playing its classic role: the safe-haven asset of choice. It jumped more than 1% recently, bolstered by a weakening U.S. dollar and lingering macroeconomic nerves. The trigger? Moody’s downgrade of the U.S. credit outlook, dropping it from “Aaa” to “Aa1”. That might not sound catastrophic, but psychologically, it rattled confidence in what has long been seen as the safest bet in global finance - U.S. debt.

Add to that a Federal Reserve that’s sounding increasingly cautious on the economy, and the dollar is starting to lose its shine. That’s a gift for gold, which becomes more attractive when the greenback softens. For non-U.S. buyers, gold is suddenly cheaper, and in a climate of rising uncertainty, that’s more than enough to revive interest.

Still, it’s not all plain sailing. Gold ETFs saw outflows of 30 tonnes last week, which is a fairly steep exit considering the strong inflows seen in April. 

That said, central bank demand remains steady, and there’s an ongoing, if slow, shift by some countries to reduce their reliance on dollar-denominated assets. In that broader context, gold’s appeal is more than just tactical. It’s strategic.

What’s more, geopolitical stress doesn’t hurt. 

Talks of a potential ceasefire between Russia and Ukraine have surfaced again, but there’s little real progress. The EU and Britain announced new sanctions against Russia without waiting for the U.S., and Ukraine is calling for the G7 to tighten the price cap on Russian seaborne oil. Meanwhile, the conflict continues to cast a shadow over the global outlook, keeping a firm bid under safe-haven assets. If Israel were to strike Iranian nuclear facilities, a risk currently hanging in the background, gold could catch an additional tailwind as investors rush for cover.

Oil and gold: Two commodities, one message

Here’s where things get interesting. Oil and gold aren’t always in sync - in fact, they often move on different themes. Oil tends to reflect supply and demand dynamics, while gold responds to financial system sentiment. But right now, they’re both moving higher. That’s a rare signal.

Oil is telling us the world is getting riskier on the ground. Gold is telling us it’s getting riskier on the balance sheet. And together, they’re signalling that this isn’t just a temporary blip - it could be the start of a longer, more turbulent phase.

For investors, that means rethinking exposure. Are traditional asset classes pricing in enough risk? Are portfolios adequately hedged for a world where volatility might not be a moment, but a mood?

And for traders, it means opportunity - but also caution. Momentum can be fast and fierce when fear fuels the market, but the underlying trends here are complex and could evolve quickly. A ceasefire could cap oil, but a stubborn inflation print could lift gold. The cross-currents are strong.

Technical outlook for oil and gold markets: Prolonged risk cycle?

So, are oil and gold positioning for a prolonged risk cycle? The signs are pointing in that direction. We’re seeing not just reactionary moves, but a deeper re-rating of risk across the board. Whether it’s tension in the Middle East, economic doubts in the U.S., or stalled diplomacy in Eastern Europe, the stage is being set for commodities to reclaim their role as real-time risk indicators.

Gold is shining again. Oil is heating up. And markets, it seems, are no longer trading on hope - they’re trading on caution. 

At the time of writing, Oil is showing some buy-side pressure within a sell-zone, hinting at a potential drawdown. However, the volume bars paint a picture of sellers not yet moving in with conviction - making the case for a further price uptick. If the up move materialises, prices could encounter resistance walls at the $64.06 and $70.90 resistance levels.

Gold has also seen a significant uptick after a period of consolidation. Buy-side pressure is evident on the daily chart as bulls seek to reclaim the $3,330 mark. The volume bars indicating weak sell pressure also adds to the bullish narrative. Should we see a further uptick, prices could find resistance walls at the $3,435 and $3,500 resistance levels. If we see a significant drop, prices could find a support floor at the $3,190 support level.

Will oil and gold keep surging? You can speculate on the price trajectory of both commodities with a Deriv MT5 or Deriv X account.