Gold hit a one-month high last week as tensions escalated between Israel and Iran, pushing safe-haven demand higher. Yet, as of Monday, gold prices remain relatively subdued—trading around $3,414 per ounce and slightly down by 0.5% from Friday’s close, despite the ongoing conflict. Why hasn’t gold surged uncontrollably in response to the crisis?
1. US Financial Markets Are Holding Up
Despite sharp sell-offs in equity markets and surging oil prices following the outbreak of hostilities, key US financial indicators like bond yields and the US dollar have remained stable. The US Dollar Index, in particular, has stayed below 105, avoiding sharp spikes that often coincide with panic-driven gold rallies.
Stable bond yields and dollar strength tend to put a lid on gold prices because gold doesn’t yield interest, making it less attractive compared to other assets during risk-off episodes when the dollar spikes. This relative calm in US financial markets is a key reason gold has not accelerated higher despite geopolitical risks.
2. Investors Await Key Central Bank Signals
Market participants are cautious ahead of major central bank meetings this week, with particular focus on the US Federal Reserve’s policy decision expected Wednesday. After recent softer inflation data, speculation is mounting that the Fed may begin cutting interest rates as soon as September.
This anticipation has created a “wait and see” atmosphere, where traders are reluctant to push gold prices too far without clearer guidance from the Fed on the future monetary path. The Fed’s stance will be critical in determining gold’s next big move.
3. Gold Has Already Seen a Strong Rally This Year
Gold prices have surged roughly 47% over the past year, driven by a combination of geopolitical uncertainty, trade tensions spurred by former President Donald Trump’s tariff policies, and central banks’ moves to diversify reserves away from the US dollar.
China and Russia, in particular, have been major accumulators of physical gold, supporting prices steadily. This has resulted in gold prices already being close to all-time highs reached in April—less than 2% below the $3,500 peak.
4. Geopolitical Risk Is Priced In—For Now
While the conflict in the Middle East is severe and ongoing, markets have already priced in much of the risk, reflecting in gold’s elevated levels. Investors may be preparing for further volatility but are balancing this with other factors like economic data, trade policy developments, and central bank actions.
In summary, gold’s safe-haven appeal remains strong and underpins prices near record levels. However, the absence of panic-driven buying is largely due to the stability of US financial markets, investor caution ahead of key central bank meetings, and the fact that gold has already experienced a significant rally this year. The coming days and Fed decisions will likely dictate whether gold breaks above its all-time highs or consolidates further.
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