Middle East Heats Up, Gold Holds Steady
Gold was steady as markets watched for signs that the conflict in the Middle East could spread to include the U.S. after President Donald Trump called for Iran’s unconditional surrender.
Bullion was trading near $3,395 an ounce after fluctuating in a relatively narrow range since early Tuesday. Trump’s warnings of a possible attack on the country’s leader, Ayatollah Ali Khamenei, and meetings with his national security team in Washington have raised concerns that the U.S. could join an Israeli strike on Iran.
U.S. firepower is seen as essential to achieving a more complete destruction of the Islamic Republic’s atomic program than anything Israel could do on its own. But Trump has so far resisted calls from some political allies to join in an attack on Iran and its nuclear sites.
Washington’s involvement could trigger retaliatory attacks from Iran on U.S. military bases, regional energy infrastructure and shipping in the Persian Gulf. Such a scenario would likely spur inflation and push gold past its record high of $3,500 an ounce set in April. Bullion has gained about 30% this year as a mix of trade, economic and geopolitical risks has prompted central banks to buy the precious metal.
“One might have anticipated that gold prices would rally on rising geopolitical tensions, but that hasn’t happened,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “Instead, there’s an unusual lack of momentum, raising questions about whether there’s some fatigue after the 30% rally seen this year.”
The market also factored in a series of tepid U.S. reports on retail sales, housing and industrial production on Tuesday that strengthened the case for a Federal Reserve rate cut this year. However, a major war in the Middle East is likely to be inflationary and could reduce the likelihood of monetary easing later in the year. The Fed is set to announce its latest policy settings on Wednesday.
“Despite rising safe-haven demand, speculative gold positioning remains low due to macro uncertainties,” Goldman Sachs Group Inc. said in a note late Tuesday. “This hesitation likely stems from investors who believe they missed out on the initial rally.” Spot gold rose 0.2% to $3,395.19 an ounce as of 12:34 p.m. in Singapore. The Bloomberg Dollar Spot Index fell 0.1%. Silver, platinum and palladium all advanced.
Source: Bloomberg
