As the war over Iran entered its 18th day on Tuesday, the price of gold, normally considered a safe-haven asset in times of uncertainty, was unexpectedly steady.
Since the United States and Israel first launched strikes on Iran on February 28, the conflict has escalated across the region, raising concerns about a knock-on effect on the global economy.
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On March 2, Ibrahim Jabari, a senior adviser to the commander-in-chief of Iran’s Islamic Revolutionary Guard Corps (IRGC), declared the Strait of Hormuz — through which 20 percent of the world’s oil and gas is transported — “closed”; Oil prices rose above $100 per barrel.
Stock prices have fallen in the past two weeks amid uncertainty over war on Iran, while gold prices have held steady.
What is the price of gold doing?
Gold has been broadly stable at around $5,000 per ounce lately.
On Tuesday, spot gold was at $5,001.36 an ounce at 11:00 GMT. Spot gold is the price at which physical gold is bought and sold for immediate delivery.
US gold futures for April delivery rose just 0.1 percent to $5,005.20.
Is it unexpected?
Yes. This lack of movement is surprising, given that gold prices typically rise during financial crises as investors seek safe havens to shelter their money.
This is especially true in times of global conflict.
For example, when Russia launched its full-scale invasion of Ukraine, gold prices soared, Remy Bourget, an economist at the French Institute for International and Strategic Affairs in Paris and author of the analysis forum Epistelem, told Al Jazeera.
He said the subsequent sanctions imposed on Russia by the West created a “wave of panic” among central banks and “completely changed the previous dynamics of gold prices”, as countries such as China began a series of historic purchases to reduce their dependence on the US dollar.
However, with the US-Israeli war on Iran, there has been a different reaction.
Why is the price of gold stable?
Traders may expect the US Federal Reserve to halt interest rate cuts and raise rates in response to rising inflation, James Meadway, a former economic adviser to the United Kingdom’s shadow chancellor and current council member of the Progressive Economic Forum, told Al Jazeera.
“That makes dollar assets more attractive and makes gold, which pays no interest, less,” Meadway explained.
Investors expected the US to keep cutting interest rates for some time, he said.
Another factor is that gold is already performing well earlier this year.
“Gold had risen so much before that it is now less responsive to war,” Meadway said.
Rebecca Christie, a senior fellow at the Bruegel think tank, echoed this, noting that gold has been trading above historical levels this year.
“There are other factors at play: Because the dollar has strengthened and gold is traded in dollars, it may be difficult for interested investors to drive up the price,” Christie said.
“Also, a rising dollar provides an alternative safe-haven option, and higher oil prices will likely lead to higher inflation, making the dollar more attractive.”
Is gold still a safe bet?
Not for now.
“It’s not seen as much of a hedge against uncertainty as it was two years ago,” Bourgeot said.
“I think gold has become a speculative asset at this point,” he said, adding that typical gold investors, which include central banks, are more risk-averse and may be spooked by gold’s “volatility” in the current environment.
What’s next for gold?
Experts say predictions are difficult given the uncertainty in the Middle East.
“For now, the biggest thing holding gold back from going up further is that it’s already gone up too much,” Christie said.
For the price of gold to change dramatically, two things need to happen, Meadway said.
“The first is a clear indication from the Federal Reserve, which will get a new Trump-friendly chair in May, that interest rates may be cut further despite inflationary pressures,” he said.
“The second is a change in the perception of the length of the war; currently, there is still some belief that it will end fairly quickly, but the longer it drags on and the more damage spreads, the more attractive gold starts to appear,” he said.
(Tags to translate)Economy(T)News(T)Business and Economy(T)Conflict(T)Financial Market(T)Inflation(T)Islamic Revolutionary Guard Corps(T)US-Israel War Iran(T)Iran(T)Middle Eastern States(T)
