Gold Slides as Markets Downplay the Fallout of ME EscalationGold prices are trending lower today after a slight positive open, struggling to hold near $3,365 per ounce, hovering just above the lowest level in over ten days.
This weak performance comes as markets continue to downplay the consequences of the unprecedented U.S. strike on Iran’s nuclear facilities.
Previously, experts had viewed a strike on Iran’s nuclear sites as the line between a limited bilateral conflict with Israel and a full-blown regional war with global economic costs. Fears centered around a potential Iranian—or proxy—attack on the region’s vital oil and gas infrastructure, which supplies over a fifth of global energy needs.
However, those fears have yet to materialize, offering markets some reassurance that the escalation will not trigger a major shock that could reignite concerns over global economic stability. This narrative of containment has stripped gold of the geopolitical risk premium it previously enjoyed.
According to the New York Times , some experts believe Iran is unlikely to disrupt energy flows in the region as long as its own export facilities remain intact. In another word, any Iranian attempt to destabilize energy markets may invite retaliatory strikes on its own vital oil infrastructure—further damaging its already fragile economy. Axios quoted Brookings Institution foreign policy director Suzanne Maloney describing Iran’s parliamentary call to shut the Strait of Hormuz as symbolic, arguing that the Islamic Republic is unlikely to risk its economy or the rapprochements with Gulf neighbors.
That said, the Middle East’s unpredictable trajectory, with near-daily escalations, continues to unsettle markets and sustain elevated risk appetite, which could ultimately benefit gold.
In a New York Times opinion piece , Nicholas Kristof outlined three key risks that could stem from the U.S. strike on Iranian nuclear facilities: the nature of Iran’s response, whether the strike set back or accelerated Iran’s nuclear ambitions, and whether this is a step toward a broader war.
Iran’s response could range from symbolic gestures to reckless escalation, potentially dragging the U.S. deeper into direct involvement.
According to the Wall Street Journal , Tehran may choose to strike at evacuated U.S. bases in the region, as it did in response to the 2020 assassination of Qassem Soleimani, when Iran targeted the Ain al-Asad base in Iraq in what was described as a calculated, non-escalatory response. Alternatively, Iran could intensify missile strikes on Israel—viewed by some as Washington’s largest forward base—thus keeping the conflict somewhat localized for now.
Still, Iranian Supreme Leader Ayatollah Ali Khamenei may ultimately reject a ceasefire, unlike what his predecessor Ayatollah Ruhollah Khomeini did in the late 1980s to preserve the Islamic Republic. This keeps the door open to new and unpredictable rounds of conflict, according to The Times .
On the nuclear front, Washington Post columnist David Ignatius warned in an opinion piece that Iran could pursue a crude radioactive “dirty bomb” using highly enriched near weapons-grade enriched uranium. Such a scenario would also be dangerously uncertain. In my opinion, it is unlikely that the U.S. or Israel would simply stand down after such a development, possibly setting the stage for the most extreme and dangerous escalation yet.
This could align with the protracted duration of the war and reports that Israel’s defensive missile stockpiles are running low, which raising the stakes. Israel may feel compelled to force Iran into surrender, as the U.S. did with Japan, though unlike Japan, Iran could be a nuclear state. Given Prime Minister Netanyahu’s political stance, a settlement that leaves Iran’s nuclear or ballistic program intact is unlikely to be accepted. Iran, for its part, firmly rejects dismantling its programs, adding to the likelihood of prolonged conflict and worst-case scenario.
Despite the market’s muted reaction to the U.S. strike, the surrounding risks remain significant and unresolved. As long as their realization remains uncertain, volatility in gold and oil prices may persist until the conflict is either resolved or definitively contained.
Samer Hasn
