Iran-Israel tensions spark gold price jump as markets seek shelter

Business a.m.

The price of gold has entered a period of consolidation, with gains seen above the $2,350 level in early trading on Monday. This comes after the precious metal saw a rebound from its recent corrective decline, which had seen the price fall from record highs of $2,432, set just a few days prior on Friday.

Even as Asian markets showed signs of recovery, with China leading the charge, investor sentiment remained cautious in the wake of Saturday’s intensification of geopolitical tensions in the Middle East. 

The drone attacks launched by Iran against Israel on Saturday sent shockwaves through global markets, with investors worried about the possibility of a wider regional conflict. These retaliatory strikes by Iran, a first of its kind, immediately fueled demand for safe-haven assets, with gold price experiencing a resurgence in appeal as investors sought shelter from potential geopolitical unrest.

While geopolitical tensions in the Middle East and the subsequent risk-off mood have been a major driver of Gold price gains, a weaker US dollar  has also played a significant role. 

Despite the cautious market environment, the dollar failed to gather bullish momentum, reflecting market participants’ belief that the recent  surge may have been excessive. The depreciation of the dollar, coupled with investor skepticism about further gains in the greenback, created a favourable climate for gold price appreciation.

According to analysts, despite the forces favoring gold price gains, a dramatic shift towards risk-on sentiment in global markets could reverse the precious metal’s upward trajectory. The market’s reaction to the Iranian drone attacks, while initially cautious, has shown signs of moderation, as the UK, France, and Egypt condemned the strikes while Saudi Arabia called for restraint, reducing the risk of a regional conflict for the time being.

The shift towards risk-on has been reflected in the positive performance of the S&P 500 futures, which has seen a 0.25 per cent gain on Monday. With geopolitical tensions in the Middle East remaining a key driver of Gold price movements, market participants will closely monitor developments in the region for cues on Gold price direction. 

Analysts stated that if the turmoil in the Middle East intensifies, the risk-off sentiment could increase, boosting gold price towards $2,400. However, in a scenario where the dollar regains its safe-haven appeal, buoyed by rising investor demand for the greenback in response to heightened geopolitical concerns, and as market expectations of a hawkish Fed prevail, gold price may face a strong resistance barrier that could stifle its upward momentum.

As investors await the release of the critical US Retail Sales data, the potential implications for the dollar cannot be understated, with a ripple effect on the price of gold. 

Moreso, the headline figure for the monthly retail sales report, which is set to show a slower growth rate of 0.3 per cent in March compared to the previous month’s 0.6 per cent rise, could have a significant impact on the value of the dollar, given that consumer spending is a key component of the US economy.