Gold, Silver Prices Spike on US-Iran War

Prices for gold and silver spiked higher over the weekend and in early morning trading on Monday (March 2) as a full-blown war broke out in the Middle East.

Tensions between Iran on one side and the US and Israel on the other have been intensifying over the past few weeks.

On Sunday (February 28), the US and Israel launched Operation Epic Fury, a massive military campaign targeting multiple locations across Iran. The Trump administration has said the aim of the operation is eliminating Iran's nuclear and missile capabilities, while also encouraging regime change.

The legality of the military action is being heavily debated as it was not approved by US Congress.

Iran’s supreme leader, Ayatollah Ali Khamenei, was killed in the initial strikes, along with dozens of other senior Iranian leaders. The conflict has since escalated into a large-scale regional war after Iran retaliated with missile strikes and drone attacks on US military bases and allied targets in Israel, the United Arab Emirates, Saudi Arabia, Qatar, Bahrain and Kuwait, where at least four US service members lost their lives.

The gold price responded quickly to the events, rallying to an intraday high of US$5,419.60 per ounce on Monday. Silver also benefited from a rush to safe-haven assets, surging to US$97.30 per ounce. By 12:00 p.m. PST, both metals had retreated, with gold back down to around the US$5,330 mark and silver trading at US$89.44.

How should investors react to price-spiking geopolitical events?

Speaking with the Investing News Network (INN) at this year’s Prospectors & Developers Association of Canada convention, happening this week in Toronto, Lobo Tiggre, CEO of IndependentSpeculator.com, warned investors not to “give in to FOMO” as markets respond to safe-haven demand or fear-based responses.

"If we do see prices go nuts on that fear trade, that would probably fade. So don't chase that," he said.

"Maybe that's not what everybody wants to hear. They want to hear, 'Oh, it's going to the moon.' But experience suggests that geopolitical scares tend to produce short-term spikes," Tiggre added.

He also explained that the US and Israel’s military actions against Iran were not entirely unexpected and mostly already priced into the market. Hence, a return to the mean is expected.

Prior to this latest run in precious metals prices, gold was trading below the US$5,200 level, while silver was below US$90. The interest rate environment seems to be the chief factor capping gains for gold and silver.

“U.S. inflation remains above the Federal Reserve’s 2% target, making near-term monetary easing more difficult. As a result, gold may struggle to stage a strong breakout in the short term, even though safe-haven demand persists,” Linh Tran, senior market analyst at XS.com, shared in a February 26 emailed market report to INN.

What is giving gold upward support, according to Tran, is robust institutional demand.

“From a flow perspective, a notable signal comes from SPDR Gold Trust, which purchased nearly 19 tons over three consecutive sessions. The swift return of institutional inflows suggests that hedging demand remains intact,” she said.

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

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