THE price of gold has remained broadly flat, despite predictions it would spike during the Iran war – but experts believe it is “likely to push through its recent highs in the coming weeks or months”.
The yellow metal briefly reached a peak of $5,400 an ounce in the days after Donald Trump launched missile strikes in Iran.
But since then, and despite the war still going on 10 days later, it has hovered just below $5,200, defying predictions it could soar past $6,000.
Silver has also hovered around $80 to $90 an ounce without spiking – still way below the highs of $120 back in January.
Experts said the stronger US dollar, delayed expectations of interest rate cuts across the pond due to inflation fears, a “liquidity flush” and profit-taking have all seen gold remain steady rather than spike during the war.
That and the fact the conflict had likely already been priced in.
“Perhaps traders and investors had priced in the Iran conflict already because they saw the build-up of US ships. Markets are forward-looking and so look a few months, sometimes years ahead”, said David Belle, Founder and Trader at Fink Money.
He continued: “I think another reason for the steady performance of gold is that markets move based on marginal buyers, namely those who are happy to buy high but will often sell when prices rise only slightly.
“The gold price had rallied so much already that the marginal buyer largely became exhausted based on geopolitical instability and exited, contributing to a sell-off.
“That has applied downward pressure on the price but the strong fundamentals for gold are keeping its price comfortably above $5,000.”
Ebb and flow
Cameron Parry, CEO at gold savings account, TallyMoney, said he expected the price of gold to “ebb and flow as it always does, in an upward trajectory”.
He added: “Gold has remained steady during this conflict as the gold price had already increased during the pre-conflict build up.
“The missile strikes created an initial extra push into safe-haven assets, in turn pushing gold briefly to around $5,400 an ounce, but that pulled back a little as panic faded and other market forces rebalanced themselves.
“A stronger US dollar, delayed expectations for interest rate cuts and some profit-taking after gold’s strong years-long run have all helped keep gold steady as geopolitical risk and uncertainty reigns.
“In my view, the current gold price just reinforces the critical role gold plays. Gold is functional and reliable during war and during peace.
“It is a continual counter to government-induced inflation and currency debasement. Over the coming weeks and months, I would expect the gold price to ebb and flow as it always does, in an upward trajectory. Fast or slow, the rise is not a trend, it’s the norm since the turn of the century.”
The US dollar
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the US dollar has surged as a competing safe-haven.
He added: “There’s a safe-haven tug-of-war going on in the financial markets. While the Iran war drives demand for safe-haven assets like gold, the war has also spiked oil prices and inflation.
“This has forced the Federal Reserve among other major central banks to signal higher-for-longer interest rates, which increases the opportunity cost of holding non-yielding gold.
“Simultaneously, the US dollar has surged as a competing safe-haven, making dollar-priced bullion more expensive globally.
“What we have seen in March so far is a ‘liquidity flush’ where investors sold gold to cover losses in crashing stock markets, capping the initial spike to $5,400. The longer the war goes on, the more chance of gold spiking up towards $6,000.”
War headlines not the real driver
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said the initial spike at the start of the war was due to “headline chasers”.
She added: “Gold has stayed broadly flat because war headlines are not the real driver of this bull market. Gold and silver were already in established up-trends before the Iran strikes, so the brief spike to around $5,400 simply sucked in ‘headline chasers’ who were then shaken out as the market quickly corrected.
“Short term geopolitical news can create volatility, but it rarely determines the long term trend in precious metals. The bigger forces are monetary excess, weakness in the financial sector, and stress in government bond markets, not the war itself.
“The recent pullback in gold and silver has not damaged the underlying uptrend and instead looks more like normal consolidation after a strong rally.
“If those broader financial pressures continue to build, gold is likely to push through its recent highs in the coming weeks or months, potentially in a much more sudden move by summer.”
Higher prices likely
Nick Cawley, Analyst at Solomon Global, said if the price of gold stays above $5,000 per ounce, then he expects it to continue growing.
He added: “The recent market softness appears to stem from shifting expectations around interest rate cuts, which are now being pushed back. This delay is largely attributed to rising oil prices, which may potentially reignite inflationary pressures.
“The first Fed cut is now predicted to be in September. An alternative argument worth considering is that elevated oil prices could significantly dampen economic growth, prompting central banks to implement rate cuts sooner rather than later to stimulate their economies.
“As long as gold stays above the psychological $5,000 level, then higher prices are likely in the coming months.”
