The Strategist

Market shifts: the potential slowdown of gold's rally amidst Middle East de-escalation

In our previous analysis from November 2023 titled "Beyond the Middle East conflict: gold shines in times of crisis" we highlighted a dark moment for the Middle East and suggested that it was an opportune time to invest in gold. And indeed it was. Since then, however, the dynamics have changed. While Iran’s recent drone attacks on Israel initially heightened fears of regional destabilisation, prompt and effective defensive measures by Israel and its allies, along with proactive diplomatic negotiations, have helped to avert further escalation. This effective management of the situation has reassured markets and maintained stability amid ongoing tensions. Given these developments, we are now witnessing a potentially favourable moment for the Middle East and a possible cooling of the gold rally. 

Sebastian Petric, LGT Senior FX Strategist
Reading time
10 minutes
Gold price
© Shutterstock

Iran’s recent drone attacks on Israel have marked a concerning development in regional tensions, but concerted international efforts have so far kept the situation from escalating further. The robust interception of nearly all incoming drones and missiles by Israel's defence systems effectively minimised damage and casualties, helping to prevent an immediate intensification of the conflict. This successful defence also allowed both Israel and its global allies to carefully manage their responses and avoid further provocations.

Impact on global markets surprisingly muted

In the economic sphere, despite the potential uncertainties, the impact on global markets has been surprisingly muted. Oil prices have seen only minor fluctuations, with Brent crude maintaining a steady range rather than experiencing spikes due to geopolitical risks. This stability suggests that the market is not anticipating a prolonged conflict between Israel and Iran at this stage. Similarly, gold prices, often seen as a barometer for global uncertainty, have remained relatively unchanged, indicating that the market views the current situation as contained.

Global powers work together to defuse tensions

International diplomatic efforts, particularly by the United States and China, are focused on de-escalating the situation. The US has taken a more assertive role in recent weeks, while China is also leveraging its influence over Iran to prevent further provocations. These actions are part of a broader strategy to stabilise the region and prevent it from escalating into a wider conflict, which would have more severe global economic repercussions.

Overall, while the drone attacks initially posed a serious threat to regional stability, the effective defensive actions and ongoing diplomatic negotiations have so far prevented the situation from worsening. This has reassured markets and allowed them to remain relatively stable amid the tensions. The continued vigilance and engagement of global powers will be crucial to maintaining this stability moving forward.

Contact us