Gold Soars on Middle East Tensions; Silver Follows

Prime Headlines

Gold prices jumped near two-month highs on increasing Middle East tensions that prompted safe-haven demand.
Silver also edged up modestly aided by tight supply and industrial demand.

Key Points

Spot gold rose about 1.2% to $3,428/oz aided by Israeli airstrikes on Iranian military and nuclear targets.
The US hit back by redeploying troops, adding to worldwide geopolitical tension.
Spot silver rose 0.3% to $36.4/oz, aided by increasing industrial demand and constricting supply.

Key Background

Middle East tensions have again pushed investors into safe houses of precious metals. These incidents in recent history included Israeli air force strikes against Iranian nuclear and military installations, pushing the levels of fear of rising Middle Eastern hostilities to new heights. In reaction, the United States started evacuating its personnel and dependents from exposed areas, which has been seen as a precautionary move and a sign of declining geopolitical security.

These events drove gold prices higher, propelling spot gold above 1.2% to about $3,428 an ounce—its most in nearly two months. Gold, historically a haven against economic uncertainty and geopolitical uncertainty, has consistently bullied its way higher to such crises. Its current rally comes following its short-lived swoon last week when Iran showed readiness to restart nuclear talks—a harbinger of possible de-escalation that had temporarily cooled bullion demand.

Apart from geopolitical risk, other economic fundamentals were in play. The U.S. dollar fell to close to two-month lows, so gold became more appealing to foreign buyers. In addition, weaker inflation data and cooling employment market data have fueled speculation that the Federal Reserve may resort to interest rate cuts in the next few months. Lower interest rates make holding gold cheaper, so it’s even more appealing at times of uncertainty.

Silver, or “gold’s cheaper cousin,” also posted modest gains, advancing 0.3% to about $36.4 an ounce. Silver tends to trail gold in initial risk-off moves but benefits from safe-haven buying and its essential function in most industrial applications, such as electronics and clean energy technology. Supply shortage and futures market mechanics propelled the gain.

In the coming future, markets are highly responsive to what lies ahead in the Iran-Israel war. Any hint at rising violence or global intervention is likely to drive gold prices even higher, potentially to $3,500. In the meantime, investor attention will be on central bank policy worldwide, particularly the Fed’s communication on rate cuts and inflation projections.

In short, gold and silver are back in the spotlight as the world gets more uncertain, providing investors with a defensive asset class in times of unrest.