Iran Tensions Prop Gold Up

Over the past week, markets have been increasingly driven by the perceived risk of a US–Iran conflict. That theme is now outweighing most economic data releases, suppressing risk assets while fuelling a strong recovery in gold. The only developments likely to rival this geopolitical focus would be clear signals from central banks on future monetary policy.

Gold had been losing some momentum recently; however, it has remained firmly above its rising trend line. Rather than acting purely as a liquidity hedge, it is again asserting itself as a broader hedge against uncertainty. In relative terms, it is trading at a notable discount to levels seen just two weeks ago.

Oil has also moved higher on fears of supply disruption through the Strait of Hormuz. Even if the strait cannot be fully closed, markets tend to overshoot when pricing in significant military risk. In these environments, hard supply data often takes a back seat to headlines and speculation.

Equities have not fared as well. Weekend risk was a recurring feature during the Trump presidency, and last weekend saw traders lighten exposure to stocks. If technical levels fail to stabilise, this weekend could follow a similar pattern. The prospect of conflict, and potential spillover into energy markets, continues to weigh on equity confidence.

Currencies have been comparatively steady. The DXY has staged a modest recovery over the past two sessions, largely on shifting interest rate expectations. This complicates the outlook for risk assets, particularly given how many investment models are calibrated to a weaker US dollar and expanding liquidity.

For now, markets are likely to remain headline-driven unless tensions with Iran ease. That could come via a diplomatic pivot or renewed negotiations. If tensions escalate, volatility may increase as reactive trading accelerates.