Gold price rises as Trump signals end to Iran war

Gold prices edged higher again on Wednesday to extend this week’s rally, as signs of de-escalation in the Middle East eased investor concerns over inflation and shifted their attention to the broader economic outlook.

Spot gold rose as much as 1.8% to around $4,760 an oz., adding to its weekly gain of over 3%. U.S. gold futures also saw an extended rally towards the $4,800 level.

Dating back to last week, when U.S. President Donald Trump first announced a pause on missile strikes against Iran, the metal has now rallied by 4.5% over four trading sessions.

Equities also rebounded for a second straight day, after Trump indicated his intention to end the war even without a deal with Iran, while the U.S. dollar fell, adding to the appeal of bullion.

War ending soon?

“We’ll be leaving very soon,” Trump said at the White House on Tuesday, adding the exit could take place “within two weeks, maybe two weeks, maybe three”.

For the past month, the Middle East war has stoked fears of global inflation amid rising energy prices caused by the shutdown of the Strait of Hormuz, which transports a fifth of the world’s oil supply.

A de-escalation of the conflict could tame those concerns, reducing the likelihood of central banks hiking interest rates to combat inflation, which would hurt non-yielding assets like gold. Earlier, U.S. Federal Reserve Chair Jerome Powell said that longer-term inflation expectations remain anchored.

$5,000 in sight

Bob Haberkorn, senior market strategist at RJO Futures, said “gold could move ​back above $5,000 per ounce if we’re on a path toward de‑escalation, as rate cut expectations could creep back ​in.”

Despite this week’s gains, bullion remains some distance away from levels seen prior to the war and its record high of nearly $5,600 an oz. seen in January. In March, the metal posted a loss of 12% — its worst monthly performance since October 2008.

The Middle East conflict triggered a sharp market reaction, with Treasury yields and inflation expectations rising as equities fell, the World Gold Council, an industry booster, noted on Monday

“Whether a de-escalation will happen is unclear,” the council said in a weekly note. “Following its recent liquidity-led retracement, gold appears to have stabilized with short-term risks facing off against constructive medium-term fundamentals.” 

Banks still bullish

Still, the major banks have mostly retained a bullish outlook on gold, with Goldman Sachs recently keeping their year-end forecast of $5,400 an ounce. Last week, analysts at Wells Fargo doubled down on the metal, with an upside target price of $6,300.

“Markets are trading very much on headlines, when in reality there appears to have been very little change,” said David Wilson, director of commodity strategy at BNP Paribas, which also sees gold surpassing $6,000 an oz. this year.

“What this does suggest is, however, that if there is a peace deal in the offing, gold will rally sharply.”