As the deadline set by former President Trump for Iran approaches at 8 PM Eastern Time today, uncertainty has heightened volatility in stock markets and crude oil prices, while gold remains in a wait-and-see mode. Despite initial ceasefire signals, the risk of further escalation persists, leaving most traders on the sidelines.
On Monday, Iran expressed its desire for a permanent end to the conflict with the United States and Israel and resisted pressure to reopen the Strait of Hormuz. Concurrently, Trump warned that Iran could face annihilation if it fails to meet the Tuesday night deadline for an agreement.
Trump stated that negotiations with Iran were progressing well ahead of the deadline but insisted that any deal must guarantee freedom of navigation through the Strait of Hormuz. He further cautioned that if Iran does not accept U.S. terms, American forces could destroy all bridges within Iran and shut down all power plants by midnight tomorrow.
After two consecutive days of declines, gold prices stabilized during early trading, hovering near $4,660 per ounce, following a cumulative drop of over 2% in the previous two sessions. Traders are weighing Trump's latest threats to destroy Iranian infrastructure against the prolonged war's impact on inflation and economic growth. On Monday, following Trump's renewed warnings, U.S. Treasury prices edged higher as bond traders anticipated the Federal Reserve would maintain interest rates unchanged for the remainder of the year. Since gold does not pay interest, higher borrowing costs tend to pressure the metal.
Since the outbreak of the Middle East conflict in late February, gold prices have fallen approximately 12%, with investors selling gold positions to cover losses elsewhere, diminishing its appeal as a traditional safe-haven asset. Gold prices typically move inversely to crude oil, which rose for a third consecutive session on Tuesday, hitting its highest level since March. However, as gold prices declined, there are signs that bargain hunters are slowly increasing their holdings. Bloomberg calculations indicate that holdings in gold ETFs rose last week for the first time since the war began.
Potential Scenarios as the Deadline Arrives:
Another "Technical Extension": As seen in the past, Trump may announce a short-term extension close to the deadline, citing progress in negotiations. This would temporarily ease market panic, potentially leading to a technical correction in oil prices, while gold could face pressure from reduced safe-haven demand.
Limited Military Strike: Trump might follow through on his threats with a "limited" strike on Iranian targets such as power plants and bridges, without immediately launching a large-scale ground offensive, as a form of maximum pressure. Oil prices would experience sharp volatility, possibly spiking intraday, while gold could come under renewed pressure.
Further Escalation: If the conflict expands significantly with heightened threats and more aggressive rhetoric and actions from both sides, it could ignite the energy market, sending oil prices sharply higher. In this scenario, gold could fall further as the U.S. dollar and oil surge, forcing investors to sell gold to raise cash and cover losses in other assets like equities. Given the current extreme market volatility, any one-sided bets based on a single outcome carry significant risk. Maintaining flexible positioning remains the primary principle for navigating uncertainty.
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