US-Iran tensions are back: So, is gold going up?

Whenever tensions flare up in the Middle East, gold usually grabs investors' attention. But with the US-Iran conflict back in focus, is the yellow metal finally gearing up for a rally?

In Short

• Gold prices remain under pressure despite US-Iran tensions
• Rising oil prices fuel inflation and rate hike concerns
• Investors await Federal Reserve meeting minutes

Whenever there is geopolitical uncertainty, gold is usually the first asset investors turn to. So, with fresh hostilities between the United States and Iran making headlines again, many expected the yellow metal to rally. But that hasn't happened yet. Instead, gold prices have remained under pressure as traders weigh rising oil prices, inflation worries and expectations around US interest rates.

At around 12.15 pm, MCX Gold was trading at Rs 1,45,121 per 10 grams, down Rs 271 from the previous close, showing that investors are still taking a cautious approach.

WHY ARE GOLD PRICES UNDER PRESSURE?

Market sentiment weakened after reports of fresh strikes by both the US and Iran raised fears of another escalation in the Middle East. The conflict has once again brought attention to the possibility of disruptions in the region's oil supplies.

As crude oil prices climbed, concerns over inflation returned. Higher oil prices often feed into overall inflation, which can prompt central banks to keep interest rates elevated for longer. That has made investors rethink their bets on gold.

At the same time, the US dollar has strengthened, making gold more expensive for overseas buyers and limiting demand.

INFLATION FEARS ARE OUTWEIGHING GOLD'S SAFE-HAVEN APPEAL

According to Dr Renisha Chainani, Head – Research at Augmont, the recent geopolitical developments have changed market expectations around inflation and interest rates.

"Gold and silver are trading on a weaker footing, as worries about inflation and higher interest rates resurfaced after fresh US strikes on Iran pushed oil prices and the dollar higher, just ahead of the Fed's June meeting minutes. This fresh flare-up put the interim US-Iran peace deal at risk and sent oil prices climbing, reviving inflation concerns and boosting the case for another rate hike,” Chainani said.

She added that investors were also waiting for more clarity from the US Federal Reserve.

"Investors were also waiting on the minutes from the Fed's June 16-17 meeting, due later today, for fresh clues on where interest rates are headed under Chair Kevin Warsh. Markets have now pushed up the odds of a September rate hike to over 63%, up from around 57% just a day earlier," Chainani said.

The expectation of higher interest rates has reduced gold's appeal in the short term, despite rising geopolitical tensions.

WHY DO US INTEREST RATES MATTER?

Gold does not generate regular income like fixed-income investments. When markets expect interest rates to remain high or rise further, investors often shift towards assets that offer better returns.

That is why expectations of another US rate hike, combined with a stronger dollar, have prevented gold from gaining despite its traditional role as a safe-haven investment during times of global uncertainty.

WHAT TECHNICAL LEVELS SHOULD INVESTORS WATCH?

From a technical perspective, analysts believe gold is trading with a weak bias and needs to cross important resistance levels before sentiment improves.

Ponmudi R, CEO of Enrich Money, said MCX Gold remains under pressure.

"MCX Gold opened on a weak note and is trading below the Rs 1,45,000 mark, reflecting a cautiously weak undertone. Immediate support is placed at Rs 1,44,500–Rs 1,44,000, and a break below this zone could drag prices toward Rs 1,43,000."

He believes any recovery will depend on gold moving above key resistance levels.

"On the upside, prices need to reclaim Rs 1,45,500, above which the Rs 1,46,200–Rs 1,46,600 zone acts as immediate resistance. A sustained move above this range could extend the recovery toward Rs 1,47,600–Rs 1,48,000. Overall, the near-term outlook remains cautiously weak, with prices needing to reclaim the immediate resistance zone to stabilise momentum."

SO, IS GOLD GOING UP?

For now, gold is holding back rather than charging ahead.

Gold is caught between two opposing forces. On one hand, rising geopolitical tensions usually increase demand for safe-haven assets. On the other, higher crude oil prices have revived inflation concerns, strengthened the US dollar and raised expectations that the Federal Reserve could keep interest rates higher for longer.

The next direction for gold will largely depend on how the US-Iran situation develops and what signals emerge from the Federal Reserve. If tensions escalate further, safe-haven buying could support prices. However, if inflation and interest rate expectations continue to dominate market sentiment, gold may remain under pressure in the near term.

- Ends