The escalation of hostilities has given fresh impetus to a rally that’s pushed gold up almost 30% so far this year. While the chances of an expanding conflict are supporting haven assets, a sustained rise in energy prices would spur inflation and make interest-rate cuts less likely, a negative for bullion that doesn’t offer any interest.
Tehran, so far, hasn’t launched any major retaliatory attacks, and is likely to receive only rhetorical support from Russia and China, while militia groups it’s armed and funded for years are refusing or unable to enter the fray.
Iran may also not want to antagonise Beijing by taking any action that would lead to a major surge in oil prices. That, together with the fact that bullion is only about US$125 an ounce off its record high reached in April, may be restraining gains at this point.
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“The fear of a broader regional conflict in the Middle East, critical for global energy supplies, has driven a surge in demand for gold as investors seek to mitigate risk,” said Bas Kooijman, CEO of DHF Capital. “The dual forces of uncertainty and accommodative monetary policy are likely to keep gold prices near record highs in the near term.”
Spot gold climbed 0.2% to US$3,375.04 an ounce as of 7.47am in Singapore, taking it to within US$125 of its record high. The Bloomberg Dollar Spot Index added 0.1%. Silver edged higher, while platinum and palladium fell.
Chart: Bloomberg
