By the end of last week, the price of gold had dropped to $3,368. Despite the drop, the global economic backdrop continues to favor the precious metal, with rising geopolitical tensions and increasing demand from central banks providing support.
Results from an annual survey conducted by the World Gold Council also highlight increasing interest in gold accumulation. Seventy-three central banks participated in the survey, with 40% of them revealing that they planned to increase their gold holdings over the next year. 72% of central banks also expect gold’s share in global reserves to grow over the next 5 years, the primary motivations for the increase being the precious metal’s hedging capabilities against inflation, value retention, and diversification benefits, among others.
The Bank of England, the European Central Bank, and the Federal Reserve have issued conservative policy guidance though, highlighting the possibility of prolonged high interest rates.
This environment increases the opportunity cost of holding gold and explains why over the short term, the price of the precious metal may remain low. This situation is further bolstered by a stronger dollar, elevated Treasury yields, and diminished expectations for rate cuts.
U.S. President Trump had also issued a 14-day deadline for administration officials to present feasible diplomatic and military strategies regarding possible action against Iran. This came after he held another high-level meeting last week, with Israeli officials urging America to act swiftly against Iran.
In their statements, Israeli officials claimed that any delay could ruin chances to move against Iran’s nuclear facilities.
While Trump initially appeared conflicted on whether to focus on diplomatic efforts to end Iran’s nuclear program or join the Israeli attack on the Middle Eastern country having campaigned on a promise to keep the country out of foreign wars, he appears to have made up his mind.
Following his authorization of airstrikes on a trio of nuclear facilities in Iran last week, it’s been recently confirmed that Washington successfully bombed the Isfahan, Natanz, and Fordo facilities.
Israel officials note that the operation was carried out in close collaboration with the U.S. According to U.S. General Dan Caine, 14 ‘bunker buster’ bombs were dropped on the target areas. Defense Secretary Pete Hegseth added that this operation didn’t target the Iranian people or the country’s troops, noting that their objective wasn’t and hadn’t been about changing the regime.
Regardless, it is unlikely there’s much room for diplomacy left between the United States and Iran now. It remains to be seen how the situation will progress and how gold will perform as a result. Given that geopolitical risks and conflicts drive investors towards safe haven investments like gold, it is likely that the price of the precious metal could continue its climb. Companies like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) could benefit from this growing interest in gold.
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