Gold Eases Off, but Israel-Iran Conflict Means Risk Tilted to Upside

• Gold slips after closing in on an all-time high Friday.
• Middle East tensions spooked markets, but the reaction now is tempered.
• All eyes turn to the central banks and the G7 summit this week.
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After a weekend dominated by headlines coming out of Israel and Iran, financial markets began the new week on a shaky footing overnight, before slowly recovering. The initial flight to safety that drove gold to near a fresh all-time high has since moderated, with the precious metal dipping into the negative territory by mid-morning London session.

We also saw crude oil turn more than 1.5% lower after it had initially surged as much as 5.5% amid the weekend strikes. And that was enough to send the S&P 500 futures, which had shed over 1%, some 0.5% higher. The question now is whether the risk-on trade will kick on, or whether the flight to safety will return. Clearly, investors feel the latest flare-up may remain contained to regional sabre-rattling rather than morph into something broader.

But nothing should be taken for granted. Indeed, it’s not all calm. US Treasuries sold off for a second day, nudging the 10-year yield up to 4.46%—a reflection of lingering concern that sustained oil price pressures could rekindle inflationary fears. For gold, while the small retreat from its record peak suggests the market may be reassessing the severity and longevity of the geopolitical risk, the risks remain clearly tilted to the upside.

Gold’s Haven Appeal Remains Strong

Following the Israeli attacks on Iran, there have been some haven flows into gold, although so far this hasn’t been enough to lift the metal to a new all-time high above the April peak of $3,500. Oil prices have also given back a good chunk of their gains, as so far there haven’t been any major disruptions to the oil market, but the potential is clearly there.

The tensions have clearly introduced a risk premium into the market, with traders concerned about potential disruptions to oil production and transportation, in particular through the Strait of Hormuz. But until the situation calms down, the downside should remain limited for gold. As well as geopolitical factors, you also have ongoing trade tensions that don’t seem to go away. If Israel-Iran tensions escalate further, then gold could easily hit a new all-time high.

What Other Factors Are Supporting the Gold?

Ignoring the Israel-Iran situation, let’s not forget that gold had already been on the rise. It has been supported by multiple factors, ranging from continued central bank buying to retail speculative investment. The biggest catalyst has been high inflation since the pandemic, which has eroded the value of fiat currencies across the world.

In other words, inflation hedging has been and remains a key driver for gold prices. It should be noted that the tariff uncertainty has also been boosting inflation expectations for obvious reasons, and it is through this channel that it has benefited gold. What’s more, investors have increasingly become concerned about the long-term sustainability of government borrowing amid rising debt levels and increasing servicing costs.

Incidentally, this may be why the PBOC and other central banks are swapping Treasurys for gold in their reserves. Then, on top of all that, you have a weakening US dollar which is helping to underpin the buck-denominated commodity.

Is Gold Going to Continue Finding Dip-buyers?

For as long as the above worries persist, I will be expecting to see shallow dips and continued buying interest on those dips, though I think the upside potential in the near term might be limited because the metal is starting to look a little too expensive and the dollar too cheap. Still, a new all-time high is not within reach.

But among the factors that could weigh on gold prices later in the year is the potential for the US to strike deals with its partners and remove trade restrictions and tariffs. This should have happened by now, Trump would argue. But the fact that it has taken so long goes to highlight the difficulty of achieving better trade terms without causing markets to tank.

With trade uncertainty to persist longer than expected, the negative implications of this on gold could be delayed, allowing the metal to potentially break to a new high above $3,500, and potentially go some distance above it in the near-term, especially with the Middle East tensions heating up dramatically again.

Central Bank Meetings Will Come Into Focus Later in the Week

As the week unfolds, attention pivots to monetary policy. The Federal Reserve and the Bank of Japan are both set to deliver rate decisions, while the G7 convenes against a backdrop of geopolitical tension and inflation uncertainty. For gold traders, that means a cocktail of catalysts—safe haven flows, interest rate outlooks, and macro risk—all in play. So, a lot can and will change as we head deeper into the week.

Key Levels to Watch on Gold

Key support now comes in around the $3,400 level, which had been resistance in the past before Friday’s breakout. A potential re-test of this level could bring in dip-buyers once more. Below this, $3,350 is the next important levels, followed by $3,300.

In terms of resistance levels to watch, well, there are not many left now. The $3430 has held back gold from a closing basis, and so it remains a level to watch. If we go above it then the April all-time high will come into focus next, at $3,500. Above that, it is clear blue skies again, with the next objective target being the 127.2% Fibonacci extension of the downswing from the April peak, at $3,603.

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