Friday’s bounce in stocks and gold rested on a Financial Times report that Gulf foreign ministers would meet Iran’s foreign minister in Salalah today.
On Sunday, Oman’s foreign minister postponed the meeting indefinitely (what a polite way to say “cancelled”, right?) “in the interests of consensus.”
On Friday, Saudi Arabia confirmed it had shut the East-West pipeline, its 4-to-5-million-barrel-a-day bypass around the Strait of Hormuz, after drone strikes launched from Iraq.
Oil is back above $102 on WTI this morning, hike odds for Wednesday are at 90 percent, and gold has lost about $77 to trade near $4,331.
On Friday, I wrote: “a rally that needs a headline to happen is the weaker kind, and this one needed a Financial Times report about a meeting that has not taken place.”
It still has not taken place, and now it will not, at least not today. I also wrote on Friday that the market’s habit of pricing the diplomacy and discounting the second chokepoint is “a choice it has made before in this war, usually for about a week.” This time it lasted one trading day. WTI settled Friday at $100.05, down 2.4 percent on the meeting, and is up 2.4 percent this morning on its cancellation, which puts crude back where it was before the report existed and leaves Friday’s rally in stocks and gold without the reason it was built on.
The bypass is shut
On September 8, I wrote about the Houthi strikes on Saudi facilities: “That is the bypass route under fire, not the blocked one.”
The bypass is now closed. Saudi Arabia’s Energy Ministry shut the East-West pipeline on Friday as a precaution after drone attacks on Thursday and Friday hit the line and the equipment that runs it, with satellite imagery showing smoke over a section south of Medina. The pipeline had been carrying 4 to 5 million barrels a day to Yanbu on the Red Sea, the route that replaced Hormuz for Saudi exports after February, and there is no alternative for that volume. The IEA says Saudi crude supply has fallen to its lowest in more than three decades and now expects world supply to decline by 5.7 million barrels a day this year, about 6 percent, up from the 4 percent it had projected. Asian refiners with cargoes due at Yanbu had received no word by this morning.
The drones came from Iraq, where the prime minister’s office dismissed a military commander after confirming the launch points and closed two border crossings with Iran. On the water, Houthi forces completed their advance along Yemen’s Red Sea coast, took Perim Island at the mouth of the Bab el-Mandeb, and threatened to close the strait entirely. President Trump said the Houthis had called Washington to ask it not to intervene. An hour before Oman cancelled the Salalah meeting, a US official said “Iran does not control the Strait of Hormuz and never will.”
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Both of Saudi Arabia’s export routes are now under pressure at once, one blockaded and one bombed, and gold’s answer this morning is a $77 decline.
The neckline
On Friday, I wrote: “The right shoulder of the head-and-shoulders top formation continues. Based on the symmetry of the pattern, it seems that those are its final days, and that we’ll see a breakdown below it any day now.”
Gold moved very close to the neckline this morning (it’s now lower than previously), having given back Friday’s entire bounce and Thursday’s as well. The head and shoulders top formation completes on a daily close below the line, and the target, as I explained on Thursday, is below $4,000 rather than the $4,100 I first wrote, because the neckline slopes down.
In other words, gold is declining in perfect line with my gold price prediction for September 2026.
Silver is leading again, and this time on the way down. It led Friday’s bounce, as it led Wednesday’s, and it is falling faster than gold this morning, back below $64 from Friday’s $65.19 settlement. That is the third time in six sessions the white metal has outperformed into a top and underperformed out of it.
Moreover, please note that silver already completed its head-and-shoulders top. There was a tiny rebound on Friday, and today’s decline suggests that the decline will continue.
Right now, silver is sitting on its declining support line. This line stopped the late-August decline. After a breakdown rom here, we’re likely to see a powerful slide. Perhaps Wednesday’s interest rate decision will be the trigger, and perhaps something else will get silver – and the rest of the precious metal sector – moving.
For example, a soaring USD.
The double-bottom pattern seems to have been repeated. Several months ago, a big rally followed, so it’s likely that we’ll see something similar also this time. Please note how perfectly the 50% Fibonacci retracement worked this time.
The week
The FOMC decides on Wednesday with a hike about 90 percent priced and Chair Warsh’s press conference to follow, August retail sales arrive Tuesday, the Bank of England decides Thursday along with the Security Council vote on Iran sanctions, the BoJ decides Friday with a hike expected, and Friday is also quadruple witching, which I described in Friday’s alert.
Where this leaves us
My outlook and positions are unchanged, and the profit-take levels remain in place.
The meeting that justified Friday’s bounce was cancelled, the pipeline that carried Saudi oil around the blockade is shut, the buyback that was meant to cap yields failed to fill its own order, the hike odds are at 90 percent, and gold is on the neckline with silver leading it down. The pattern I described on Friday as being in its final days has one daily close left to complete.
Gold was handed a second closed chokepoint over the weekend. It opened the week $77 lower.
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