Gold Price Briefly Passes US$1,600 as Conflict Fears Mount

The gold price hit a second seven year high this week following an Iranian missile attack on two Iraqi military bases.

The yellow metal surged late Tuesday (January 7) after as many as 15 ballistic missiles were fired from Iran, targeting American troops and machinery at the Irbil and Al Asad air bases, west of Baghdad.

The airborne assault immediately impacted markets, driving oil and safe haven assets higher. Gold broke US$1,600 per ounce to sell for US$1,609.

As news that no American or coalition troops were injured began to circulate, gold began to retreat, and the yellow metal opened the trading day at US$1,577.

Earlier in the week, the popular precious metal hit its highest price since 2013 — US$1,578.80 — following a drone attack launched by the US that killed top Iranian general Qasem Soleimani.

Gold’s price moves could be temporary

The back-and-forth posturing from both nations in the days since has created widespread volatility in the markets. This has strongly benefited gold, but it’s uncertain how long its high levels will last.

“Typically, geopolitical events have only a temporary impact on price unless they have potential for developing,” said Adrian Day of Adrian Day Asset Management.

In a Wednesday (January 9) morning press conference, US President Donald Trump asserted his stance that America will never permit Iran to possess a nuclear weapon.

The US leader noted that he will be asking NATO to increase its numbers in the Middle East, a move many view as implying the US may be pulling out of or greatly reducing its presence in the area.

If cooler heads prevail, Day expects the price of gold to display more stability.

“If the Iranian missiles, which killed no one, are the end — a face saving for Iran — then gold could retreat,” he said.

He added, “But if Trump retaliates and we enter a tit-for-tat with potential for other countries to get involved, then impact would be longer lasting. Typically, though, geopolitical events have short-lasting impact and do not help gold stocks.”

Gold has trended higher since May 2019, driven largely by the ongoing trade dispute between China and the US, an issue that has yet to be solved and is still impacting the sector and broader markets.

Other drivers key for gold (and stocks)

“The escalating conflict in the Middle East is only the latest tailwind for gold,” said Gerardo Del Real of the Outsider Club and Resource Stock Digest. “Price increases based solely on geopolitical factors usually are not sustainable and we may see some profit taking in the next several weeks.”

In terms of lasting influence on the gold price, the market commentator foresees issues much closer to home being more impactful in the long term.

“Trillions of dollars of negative-yielding debt coupled with irresponsible fiscal and monetary policies provide plenty of ammunition for the yellow metal to slowly but surely add to recent gains throughout the year,” he told the Investing News Network.

As the world awaits the next move in this evolving global drama, Del Real sees an opportunity for investors who have yet to get involved in the gold space or those with an appetite for risk.

“For speculators, the good news is that, although some juniors have responded well now that tax-loss selling season has passed, most continue at near historic lows compared to their equity counterparts on the major indices, which provides what could be a generational opportunity to own the best names at severely discounted prices,” said Del Real.

By midday on Wednesday, the price of gold had fallen by 3 percent to US$1,555.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.