Key Points
- US forces carried out what the Pentagon called “defensive” strikes on missile launch sites and minelaying boats in southern Iran on Monday.
- Iran’s Revolutionary Guard retaliated with a drone attack on a US airbase on Thursday.
- Brent crude rallies to $96.60 per barrel.
- President Trump insists a deal is within reach.
- Trump allies have voiced opposition to the proposed deal, which they say favors Iran.
- Trump says he can outwait Iran and that Iranian leaders had miscalculated if they thought the November midterm elections would force him into a deal.
- Gold and silver fall as prospects for a peace deal fade.
DUBAI/WASHINGTON, May 28 (Reuters) – Iran’s Revolutionary Guard targeted a U.S. airbase on Thursday after the U.S. military carried out what a Washington official said were strikes on an Iranian drone operation near the Strait of Hormuz….
The U.S. official, who requested anonymity to speak candidly about military operations, told Reuters the military shot down four Iranian attack drones and struck a ground control station in the port city of Bandar Abbas that was about to launch a fifth drone.
“These actions were measured, purely defensive and intended to maintain the ceasefire,” the official said.
The Islamic Revolutionary Guard Corps said it targeted a U.S. base in response to what it described as an early morning U.S. attack near Bandar Abbas airport, Tasnim news agency reported. The IRGC said it targeted the U.S. airbase from which the attack on the control station near Bandar Abbas was launched, without identifying the base.
Brent crude (July’26 futures) rallied to $96.60 on news of the air strikes.
Crude oil flows through the Strait of Hormuz remain at a trickle.
For those hoping the end of the price surge is near, Sultan Al Jaber, the head of the Abu Dhabi National Oil Company (ADNOC), has disappointing news.
“Even if this conflict [with Iran] ends tomorrow,” he said today at an Atlantic Council event, “full flows will not return before the first or even second quarter of 2027.”
US Strategic Petroleum Reserves (SPR) are shrinking, falling from 415 million barrels to 374 million over the past 6 weeks.
The emerging deal puts off many critical issues to be resolved later and has already exposed the Republican president to fierce criticism — even from some of his own supporters — that Iran’s hardline leaders will emerge from the conflict battered but emboldened. It all comes to a head just as the midterm elections to determine control of Congress come into focus and as Republicans worry that rising costs and fuel prices are darkening the American electorate’s mood.
But Trump on Wednesday dismissed the idea that the upcoming elections would shape his Iran strategy.
“They thought they were gonna outwait me. You know, ‘We’ll outwait him. He’s got the midterms,'” Trump said. “I don’t care about the midterms.”
….The president is also facing scrutiny from Republican allies, including Sens. Roger Wicker of Mississippi, Lindsey Graham of South Carolina and Ted Cruz of Texas, who have said the terms seem too favorable to Tehran.
They’re balking at aspects of the deal that have emerged publicly that they say too closely resemble the nuclear agreement reached with Iran by Democratic President Barack Obama, which Trump scrapped during his first term.(NPR)
Trump faces the risk that higher crude prices cause a similar inflation spike to the 2022 Russian invasion of Ukraine, resulting in a wipeout at the November midterms.
Gold & Silver
Gold and silver face increased selling pressure as the sudden drop in oil export revenues forces Gulf States to liquidate reserves, including bullion. High oil prices have also forced Turkiye to enter into an $80 billion gold swap to cover higher import costs without crashing the already-weak Turkish Lira. Russia, for different reasons, is also liquidating gold reserves to help fund its war with Ukraine.
Gold broke support at $4,500 per ounce, signaling a likely test of support at $4,000.
Silver has retraced similarly, and a break below $70 per barrel would signal another test of primary support at $60. Declining Trend Index peaks warn of continued selling pressure.
Conclusion
The US war with Iran — and negotiations — will likely continue for months, if not years. Crude oil shortages and high prices are expected to cause an inflation spike ahead of the US midterm elections, resulting in a Republican wipeout in November.
We remain bullish on the long-term outlook for gold and silver, but their current weakness will likely persist until the Strait of Hormuz reopens and oil prices fall.
Acknowledgments
- Federal Reserve of St Louis: FRED Data
- CNBC: Brent Crude ICE May’26 Futures
- NPR: US conducts another strike against Iran after Trump says Iran is ‘negotiating on fumes’
- Reuters: Iran and US trade air strikes after Trump dismisses report of Hormuz deal
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.