Stocks Bounce Back as Precious Metals Rise

Markets ended March with a sharp shift in tone. For most of the month, investors stayed cautious. Yet on the final trading day, US stocks jumped out of correction territory, while oil and the US Dollar moved lower. At the same time, gold and silver gained ground.

A big part of the move came from fresh comments out of the US and Iran. President Trump said the war could end within two to three weeks. On top of that, the Iranian President showed a conditional openness to stopping the fighting. As a result, traders grew more hopeful that tensions in the Middle East may start to ease, and that helped pull oil prices down.

US equities responded quickly. The DJIA surged by more than 1,100 points as investors welcomed the lower risk outlook. Still, the rebound may face limits. Brent crude remains above $100, and WTI is still near the same level. In addition, uncertainty around the Strait of Hormuz hasn't gone away. So while stocks are cheering the idea of de-escalation, the oil market appears far less convinced that a fast resolution is near.

In currency markets, the Dollar Index (DXY) slipped back below 100 as March ended. That move followed the small drop in oil prices. When oil stays above $100 for a long time, inflation risks rise, and that can revive expectations for Fed rate hikes later this year. Because oil cooled a bit, some of those worries eased, and the dollar lost momentum. Even so, the DXY still posted a monthly gain of about 2.5% in March. That shows the dollar remains one of the main winners when energy prices stay high, especially after Brent climbed around 60% during the month.

Gold also found support from that mix of falling oil, a softer dollar, and attractive entry levels. Early in Wednesday's Asian session, gold moved above $4700 as traders reacted to the weaker greenback and hopes that the US-Iran conflict may be nearing an end. Even with this rebound, gold had a rough March. Since the conflict began, strong oil prices and a firmer dollar pushed the metal down by about 10% during the month.

Still, gold could recover further if oil and the dollar continue to pull back. That would help calm inflation fears and could open the way toward $5000 and higher. For now, traders are watching resistance near $4735 and $4800, while support sits around $4440. On the other hand, if the conflict lasts longer than Trump's two-to-three-week timeline, or if oil and the dollar turn higher again, gold could quickly face renewed selling pressure.

Looking ahead, Friday's Non-Farm Payrolls report for March will be the main event in a shortened week due to Easter. Economists expect job growth of 65,000. The labor report still matters, but over the next few weeks, inflation may matter more. Markets are still waiting to see the full impact of supply disruptions and damage to energy infrastructure caused by the Middle East conflict.