Don’t Expect a Major Gold Rally Unless Israel-Iran Conflict Hits Oil Supply: Julius Baer

After a strong upward run, gold prices took a breather last month. However, the yellow metal is once again gaining momentum, driven by rising geopolitical tensions in West Asia. The escalating conflict between Israel and Iran, marked by a continuous exchange of direct strikes, has increased demand for safe-haven assets like gold.

At home, gold futures crossed the ₹1,00,000 mark for the first time last week. In international markets, as well, the news of Israel attacking Iran has pushed gold prices up by just over 1%. And, while most analysts continue to take a bullish stance on the commodity, global wealth management firm Julius Baer pointed out that the recent rise in gold is rather moderate.

"The gold market showed a rather moderate reaction to the news of Israel attacking Iran. With the situation being highly in flux, it is too early to tell whether this shock will lastingly lift prices. This could be the case if there is a significant economic impact of the conflict, e.g. via disrupted oil supplies, or if it spreads in the region," said Carsten Menke, head of next-generation research, Julius Baer.

Demand for safe-haven assets often goes up when the geopolitical situation takes a hit. That's exactly what happened during Trump's tariff announcement, gold surged to record highs as investors feared disruptions to global supply chains and growing risks of a trade war.

However, as tensions in the Middle East continue to rise, the current demand for gold seems to be driven more by speculation, as per analyst.

"This market reaction seems rather moderate, considering the potential consequences of the conflict and also the typical skittishness of the more short-term oriented gold traders. We assume that the reaction is driven by some speculators and automated trading systems in the futures market, rather than by genuine safe-haven demand," Menke said.

"...the market is likely to lose its interest in the conflict sooner or later, as suggested by similar geopolitical shocks in the past," he added.

While a robust rally might seem unlikely, any prospective rise in tensions caused by disruptions in oil supplies or escalation of the conflict to other regions might bring in a more "lasting reaction" in the price of the commodity.

Otherwise, the market is likely to lose its interest in the conflict sooner or later, as suggested by similar geopolitical shocks in the past, Menke said.

However, the global wealth management firm has maintained its 'constructive' view on gold, noting that global uncertainties are likely to support prices, at least for now.