Industry sources indicate that air cargo suspensions, following military actions between the U.S., Israel, and Iran, are expected to halt gold shipments transiting through Dubai for several days. Due to security and insurance protocols, gold is typically transported by air, meaning the flight cancellations are anticipated to significantly restrict the movement of physical gold.
One source stated that it appears most, if not all, airlines have canceled flights, preventing any gold shipments for the coming days. Dubai serves as a crucial supply hub for gold destined for Switzerland, Hong Kong, and India. The broader impact on global supply will depend on the duration of these transport disruptions.
Despite the logistical challenges, traders note that major financial centers, including those in China, India, New York, London, and Zurich, remain operational. Market activity is expected to be driven primarily by financial capital flows rather than physical supply constraints. Gold delivery volumes on the COMEX for February were consistent with December levels. While below the peaks seen in certain months over the past year, deliveries remain robust by historical standards. Inventories appeared sufficient heading into March, but the situation's evolution following new geopolitical turmoil warrants close observation.
Buoyed by persistent inflation, central bank accumulation, and investor concerns over U.S. trade policy, the gold price entered March on a seven-month winning streak, its longest continuous uptrend since 1973. Shortly before the strikes on Iran, financial institutions like JPMorgan and Bank of America reaffirmed long-term price targets, with JPMorgan forecasting a climb to $6,300 by year-end, citing strong ongoing central bank demand.
The situation has now shifted further in gold's favor. As Iran expands its attacks on energy infrastructure beyond Qatar to include Saudi Arabia, some traders are preparing for a prolonged conflict. A senior trader at a major Wall Street bank emphasized that wars often last longer than anticipated, highlighting the U.S. dollar and gold as primary safe-haven assets.
An investment manager at VanEck stated that gold has repeatedly proven its role as an ultimate safe haven during periods of heightened uncertainty and risk. Analysts at Natixis suggested a prolonged conflict involving Iran could push gold prices up by 15%, with much of that increase potentially materializing in the initial weeks.
Iran's threat to close the Strait of Hormuz, a passage for approximately 20-30% of seaborne oil, has escalated from rhetoric to a credible risk. Oil prices surged over 6% on Monday, marking the largest single-day gain in four years and reigniting inflation expectations. Concurrently, swap markets began scaling back bets on Federal Reserve interest rate cuts. The long-theorized oil-inflation-gold feedback loop is now active.
This conflict has also highlighted a seldom-discussed friction point in the gold market: physical delivery. Dubai International Airport, a key transit hub for gold moving from London to Asian buyers, temporarily suspended commercial flights following Iranian drone and missile attacks on the UAE. Traders reported scrambling to reroute cargo in transit, reminiscent of supply disruptions during the early COVID-19 pandemic when flight groundings caused significant price dislocations between London, New York, and Asian hubs. Such disruptions, even if temporary, underscore the structural vulnerabilities in gold's global logistics network during demand surges.
However, not all signals point to higher prices. As analysts began considering the possibility that oil-driven persistent inflation might force the Fed to tighten, rather than loosen, monetary policy, gold prices relinquished some of their early gains on Monday. A commodities strategist pointed out that rising real interest rates have traditionally been a headwind for non-yielding gold, and a scenario of rate hikes has begun to cap the upside.
Analysts at ING offered a more nuanced view, suggesting that any regional spillover effects or a prolonged closure of the Strait of Hormuz would ultimately significantly boost inflation expectations while suppressing real yields via demand for U.S. Treasuries, potentially overwhelming the headwind from interest rates. They concluded that regional spillover effects would provide a substantial boost to gold prices through higher oil prices, elevated inflation expectations, and suppressed real yields.
As of Tuesday, spot gold was up 1% for the day, trading at $5,375.43 per ounce.
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