The uncertainty surrounding talks between the U.S. and Iran has dampened the gold market and caused prices to retreat to the low range within which the precious metal traded last week. The U.S. dollar has also regained some strength, and this has exerted additional pressure on bullion.
Talks had been scheduled between the United States and Iran over the weekend but at the last minute, President Trump cancelled the trip that Jared Kushner and Steve Witkoff were about to make to Pakistan to participate in the talks. This development has created uncertainty regarding the direction of the conflict in the Gulf region.
Gold traders and investors aren’t sure whether the conflict is going to escalate or a deal will be struck to end hostilities. Given that gold thrives during times of conflict, bulls have been hesitant to enter positions until more clarity emerges on the status of the war with Iran.
That same uncertainty has caused the greenback to appreciate since the prospect of conflict boosts interest in the dollar as investors prefer to hold the reserve currency in case matters deteriorate rapidly and cash is needed at short notice. The gains made by the dollar have made gold more costly for holders of other currencies and this has constrained the buy-side of gold trading.
The U.S. Federal Open Market Committee (FOMC) is currently holding its monthly meeting. Markets are waiting for the press conference at the end of that meeting in order to get insights about the possibility of a rate reduction this year. The comments of Fed Chair Powell will be analyzed closely for pointers indicating the near-term economic outlook.
Markets generally expect one rate cut by the end of this year, and that possibility provides some relief for gold markets since an interest rate reduction dampens the upward momentum of the dollar and brings more international buyers into the gold market.
At the moment, the Iran talks seem to be the most important factor that could move the gold market in the near term. Trump rejected Iran’s latest offer to hold off on discussing nuclear issues pending an end of the war. Intermediaries are busy shuffling between the two sides to get some common ground to move the talks forward, and the outcome of those efforts holds the key to the geopolitical situation in the Gulf.
Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) and other companies engaged in gold mining, as well as other industry stakeholders, will be following the events surrounding the Iran war to forecast how markets are likely to evolve over the coming weeks.
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