During the “12-day war” in Iran last year, the price of gold first soared, then retraced its gains after a ceasefire was announced. However, in the recent two weeks following conflicts between the US and Iran, the price of gold has remained relatively stable.
On February 28th, after the US and Israel launched airstrikes on Iran, the price of gold surged from $5296 per ounce to $5423. This increase aligns with the common pattern where geopolitical turmoil prompts investors to turn to traditional safe-haven assets. However, a sell-off followed, causing gold prices to drop over 6% on March 3rd to $5085 per ounce. This week, amidst escalating conflicts, the price of gold has fluctuated between $5050 and $5200 per ounce. The latest spot gold trading price is $5175 per ounce.
Ross Norman, the CEO of the precious metals website Metals Daily, told CNBC that various factors have dampened the upward momentum of gold prices, such as the strength of the US dollar and rising US bond yields. Rising oil prices may lead to continued inflation, and the closure of the Strait of Hormuz, a key maritime route for Middle Eastern oil and gas shipments, by central banks to offset its impact could push interest rates higher.
Rising interest rates often increase the attractiveness of income-producing assets like government bonds (in contrast to non-interest-bearing assets like gold). Norman noted that recent intense volatility could lead to a subdued outlook for the future price movements of gold and silver. Institutional investors may feel concerned about holding gold due to the unusually sharp fluctuations in gold prices in recent months.
Amer Halawi, the research director at Al Ramz, told CNBC that another reason for the price fluctuations is conflict-induced panic selling leading to avalanches, where traders are forced to sell their positions when prices fall. In case of a liquidity crisis, all assets could be sold off until the market stabilizes, shifting focus back to appropriate assets.
Halawi explained that traditionally, during times of disruption, even gold is sold off initially and then rebounds later.
Despite significant short-term fluctuations in gold prices, banks remain optimistic in their forecasts. JPMorgan Chase predicts that by the end of this year, gold prices could rise to $6300 per ounce, while a recent report by Deutsche Bank suggests that gold prices could surpass $6000 by the year’s end.