Gold prices rose on Tuesday as the dollar weakened and oil prices fell, after US President Donald Trump suggested the Middle East wars could soon end.
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Gold soared during last year’s 12-day war with Iran, but gave up its gains once a cease-fire was announced. But two weeks after the latest dispute, the price has barely moved.
After the US and Israel launched attacks on Iran on February 28, gold rose from $5,296 to $5,423 per troy ounce, consistent with the axiom that geopolitical turmoil drives investors towards traditional “safe-haven assets.”
But the decline saw the price drop more than 6% to $5,085 on March 3. It traded between $5,050 and $5,200 this week as the conflict escalated. Spot gold was last trading at $5,175 per troy ounce.
Gold price for the past 5 days.
Ross Norman, CEO of precious metals website Metals Daily, said there are several factors that could explain the lack of upward momentum, including a strong dollar and rising U.S. Treasury yields.
Norman added that higher oil prices could lead to longer inflation and potentially higher interest rates as central banks struggle to contain the impact of the closure of the Strait of Hormuz, a key maritime corridor for oil and gas.
Higher interest rates tend to increase the relative attractiveness of high-yielding assets such as government bonds compared to non-yielding precious metals such as gold.
“Gold and silver price action is looking lackluster right now, but perhaps that’s what it feels like after experiencing some spectacular moves over the past few months,” Norman told CNBC in an email.
He added that some institutional investors are nervous about owning bullion because it is unusually volatile.
Another explanation, said Ameer Harawi, head of research at Al Rams, is that the conflict triggers a wave of panic selling among investors, triggering a “flash” where traders are forced to sell positions as prices fall.
“If there’s a liquidity crunch, everything is going to be sold off until people understand this and refocus on the right assets,” he said Tuesday on CNBC’s “Access Middle East.”
“Traditionally, when there is a shock, even gold gets sold off and then goes up in price later.”
Despite short-term volatility, the bank’s outlook remains bullish. JPMorgan predicts prices will reach $6,300 an ounce by the end of 2026, while Deutsche Bank has a year-end target of $6,000, according to a recent note.
