Gold outlook: XAU/USD off earlier highs as investors weigh impact of Israel-Iran conflict

Gold outlook: Middle tensions boost haven appeal of metal

Following the Israeli attacks on Iran overnight, we obviously saw a big spike in oil prices, with gold also rallying on haven flows. The question now is whether the precious metal will be able to hold onto its gains and rise even more, or will pressure from a rebounding US dollar causes it to turn lower. We have already seen a rebound in the USD/JPY, while silver has turned lower. But at the time of writing in mid-morning London session, the yellow precious metal was still holding 1% in the positive territory after earlier rising as high as 1.7% to peak, for now, at $3,344. But there is little doubt about the gold outlook which remains positive amid raised geopolitical risks in the Middle East, ongoing trade tensions that don’t seem to go away and multiple other factors. The response of Iran is now going to be key. Tensions are going to escalate and there is the potential for markets to gap at next week’s open should Tehran strikes back during the weekend.

Source: TradingView.com

What other factors are supporting the gold outlook?

Well, the price of gold has been supported by multiple factors, ranging from continued central bank buying to retail speculative investment. The biggest catalyst has been high inflation since the pandemic, which has eroded the values of fiat currencies across the world. In other words, inflation hedging has been and remains a key driver for gold prices. It should be noted that the tariff uncertainty has also been boosting inflation expectations for obvious reasons, and it is through this channel that it has benefited the gold outlook. What’s more, investors have increasingly become concerned about the long-term sustainability of government borrowing amid rising debt levels and increasing servicing costs. Incidentally this may be why the PBOC, and other central banks, are swapping Treasurys for gold in their reserves. Then, on top of all that, you have a weakening US dollar which is helping to underpin the buck-denominated commodity.

What about the rest of 2025?

The gold outlook for the rest of the year is largely supportive for as long as the above worries persist. I will be expecting to see shallow dips and continued buying interest on those dips, though I think the upside potential in the near term might be limited because the metal is starting to look a little too expensive and the dollar too cheap.

Among the factors that could weigh on gold prices later in the year, is the potential for the US to strike deals with its partners and remove trade restrictions and tariffs. This should have happened by now, Trump would argue. But the fact it is has taken so long goes to highlight the difficulty of achieving better trade terms without causing markets to tank. With trade uncertainty to persist longer than expected, the negative implications of this on gold could be delayed, allowing the metal to potentially break to a new high above $3,500 in the near-term, especially with the Middle East tensions heating up dramatically again.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R