Gold Nears $3,500 as Middle East Escalation Sparks Surge in Safe-Haven Demand

Commodity

Middle East Situation

Summary:

Gold prices surged to a nearly two-month high amid rising geopolitical risks in the Middle East, as the ongoing Israel-Iran conflict intensifies investor flight to safety...

Geopolitical Tensions Push Gold Beyond $3,400

Gold extended its rally for a fourth consecutive session on Monday, climbing 0.3% to $3,442.09 per ounce in early Asian trading and touching its highest level since April 22. The sharp move reflects heightened investor anxiety over deepening military exchanges between Israel and Iran, prompting a rush into traditional safe-haven assets.

According to OANDA’s senior market analyst Kelvin Wong, the rising political risk premium has firmly supported gold prices, resulting in a breakout above the $3,400 resistance level. He highlighted that the short-term trend remains bullish, with the $3,500 mark now acting as the next psychological and technical resistance.

Conflict Between Israel and Iran Escalates

Over the weekend, both Israel and Iran exchanged heavy attacks, leading to civilian casualties and igniting fears of a broader regional war. Military officials on both sides urged their populations to prepare for further strikes, which only deepened the market’s defensive posture. Although President Donald Trump expressed hope for a potential peace deal, he also acknowledged that military confrontation may persist before diplomacy resumes.

In such volatile conditions, gold historically functions as a hedge against geopolitical shocks. Investors have responded accordingly, positioning heavily in gold as uncertainty clouds the macroeconomic outlook.

Rate Expectations and Fed Decision Loom

Attention now shifts toward monetary policy, with the US Federal Reserve scheduled to announce its rate decision on Wednesday. While no immediate rate changes are expected, markets are keen to interpret the Fed’s language and updated “dot plot” forecasts for clues on future policy direction.

Last week’s subdued inflation print has reinforced expectations that the Fed may begin easing later this year. Futures markets currently price in two potential rate cuts by December, with a likely first move in September.

A dovish shift could further lift gold, as lower interest rates reduce the opportunity cost of holding non-yielding assets like bullion.

Other precious metals were steady to higher. Spot silver held at $36.29 per ounce, platinum increased 0.4% to $1,233.87, and palladium jumped 1.3% to $1,040.96—benefiting from the general bullish sentiment in the metals space and speculative inflows.

As geopolitical risks mount and monetary policy uncertainty persists, gold has regained its shine as a defensive asset. Should tensions in the Middle East intensify or the Fed adopt a more accommodative stance, gold could plausibly breach the $3,500 threshold, marking a new high for 2025.

Source: Reuters

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Commodity

Middle East Situation

Options Market Sees Rare Bullish Frenzy in Asia Hours

The oil options market opened the week with an unusual spike in bullish activity, as traders rushed to hedge or speculate on further price increases driven by the escalating Israel-Iran conflict. According to Bloomberg, several thousand August call options—contracts that profit if oil prices rise—were traded in early Monday Asian sessions, with strike prices above $80 per barrel. Additionally, 2,000 lots of August Brent calls at strike levels of $100 and $101 were exchanged, highlighting strong demand for upside protection or speculative leverage.

This level of options activity, especially during Asian hours, is highly atypical, suggesting heightened global anxiety and swift positioning by investors. While it remains unclear if these trades are part of broader portfolio strategies, the sheer volume reflects the growing urgency in the energy markets.

Israel-Iran Conflict Pushes Oil into Backwardation

The burst in call buying follows a weekend of military escalation, including attacks targeting energy infrastructure. Israel’s strike on Iran, aimed at crippling nuclear capabilities and military leadership, has renewed fears of widespread supply disruption.

These tensions have deepened the backwardation in Brent crude futures—where near-term contracts are priced higher than long-term ones—typically a bullish market structure. Brent timespreads widened noticeably on Monday, with nearly 20,000 futures contracts traded in the opening five minutes.

Front-month Brent futures rose by 1% to $75.02 a barrel during the Asian session, extending last week’s 13% surge, which already reflected geopolitical premiums.

Volatility High, Bullish Skew Remains Despite Slight Pullback

Although option skew—a metric that compares demand for bullish calls versus bearish puts—edged slightly lower in early Monday trading, it remained near its most bullish point since early 2022. Implied volatility also stayed elevated, signaling continued market nervousness about potential supply shocks.

Commodity strategist Soni Kumari from ANZ Bank emphasized the market’s geopolitical sensitivity, noting that if Iran were to disrupt the Strait of Hormuz—through which nearly 17 million barrels per day of oil pass—it could pose a severe threat to global energy flows. While such an extreme action is considered unlikely, its possibility underpins traders’ aggressive positioning.

With the Israel-Iran conflict intensifying and no signs of de-escalation in sight, oil traders are increasingly pricing in geopolitical risk. The early surge in call option volume and broader market behavior suggest that sentiment is tilting heavily bullish, driven by fears of supply disruption and elevated volatility. As trading continues in Western markets, further momentum could follow, reinforcing oil’s recent upward trajectory.

Source: Bloomberg

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Economic

Political

Deportation Campaign Accelerates in Urban Strongholds

President Donald Trump has directed Immigration and Customs Enforcement (ICE) to carry out what he called "the single largest Mass Deportation Program in History," targeting millions of undocumented migrants residing in major urban centers. Citing Los Angeles, Chicago, and New York as focal points, Trump made the announcement via Truth Social during his trip to the Group of Seven summit in Canada.

This effort marks a significant escalation in Trump’s second-term immigration policy, which has already resulted in the sharpest two-month decline in foreign workers in the US labor force since the COVID-19 pandemic era. While intended to showcase strength on border enforcement, the policy is now facing backlash from city officials, business leaders, and civil rights groups across the country.

Protests Erupt as ICE Raids Intensify

Mass demonstrations erupted over the weekend in cities like Los Angeles, where aggressive ICE actions and detentions have triggered civil unrest. The situation escalated after President Trump ordered National Guard troops and up to 700 active-duty Marines into the city to protect federal assets, despite vocal opposition from California Governor Gavin Newsom and Los Angeles Mayor Karen Bass.

Governor Newsom responded by filing a lawsuit claiming Trump’s deployment exceeds presidential authority. Though a lower court attempted to limit federal military involvement, the case is now under review by a federal appeals panel.

Labor Sector Feels the Pressure

The mass deportation strategy also poses risks to key economic sectors. Acknowledging growing discontent from agricultural and hospitality industries, Trump has signaled that he will consider exemptions or policy adjustments for farm and hotel workers. These sectors have long relied on migrant labor, and employers warn that sweeping deportations could further strain the already shrinking workforce.

Data from earlier this month reflects these concerns, with May showing a notable contraction in the US labor market, driven in part by a steep drop in foreign-born workers. This demographic has historically played a vital role in sustaining productivity in rural and low-margin industries.

Political Ramifications and Legal Battles

Trump's actions have galvanized both support and condemnation. For his base, the directive fulfills a major campaign promise. For opponents, it represents a breach of civil liberties and an authoritarian overreach. The protests in hundreds of US cities highlight a growing national divide over immigration enforcement tactics and their humanitarian consequences.

The administration’s framing of these operations as necessary for national security contrasts sharply with the legal and ethical concerns raised by state leaders, labor advocates, and civil rights organizations.

Trump's sweeping directive to expand ICE deportations is rapidly becoming a flashpoint in US politics, testing the limits of federal authority and reigniting debate over immigration reform. As court battles unfold and industries push back, the administration faces the challenge of balancing hardline enforcement with the economic and social stability of the country.

Source: The Washington Post

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Economic

Markets Hold Steady Despite Geopolitical Uncertainty

As tensions in the Middle East intensified over the weekend, Asian markets showed resilience on Monday, with benchmark indexes posting modest gains. The ongoing conflict between Israel and Iran has added a new layer of uncertainty to global economic outlooks already strained by protectionist policies, particularly those led by US President Donald Trump.

However, market sentiment remained surprisingly stable. Wall Street futures rebounded after an initial dip, and currency markets showed limited volatility. The MSCI Asia-Pacific index outside Japan rose 0.1%, while Japan’s Nikkei climbed 0.8%, boosted by a weaker yen and steady investor confidence. South Korea’s market rose 0.5%, and Chinese blue chips gained 0.1%, aided by stronger-than-expected retail sales growth in May.

Oil Prices Surge, Inflation Concerns Grow

Oil prices added to last week’s 13% surge as fears of supply disruptions through the Strait of Hormuz—a key global energy chokepoint—intensified. Brent crude climbed to $74.95 a barrel, while West Texas Intermediate crude rose to $73.82. These gains are likely to keep inflation elevated, reinforcing expectations that the Federal Reserve will hold interest rates steady at this week’s meeting.

Inflationary pressures from rising energy prices present a significant challenge for central banks already grappling with uncertain growth outlooks. Futures markets suggest the Fed will likely maintain its current rate band of 4.25%–4.5% this month, with minimal probability of a July cut. Analysts at JPMorgan expect the Fed’s new “dot plot” to forecast only one rate cut this year instead of two.

Investors Await Central Bank Signals

This week will be pivotal for global monetary policy. Apart from the Fed, central banks in Japan, Norway, Sweden, and Switzerland are all expected to make rate decisions. The Bank of Japan is anticipated to keep rates unchanged but may hint at future tightening or a slower pace of bond sales. Meanwhile, the Swiss National Bank is widely expected to cut rates to zero or even into negative territory, influenced by a surging Swiss franc.

Market participants are also eyeing US retail sales data due Tuesday, which could offer additional signals about consumer resilience and inflation. With a holiday on Thursday, weekly jobless claims will be released earlier than usual on Wednesday.

Currencies React to Oil Dynamics

In the currency market, the dollar strengthened by 0.2% against the yen, reaching 144.39, while the euro dipped slightly to $1.1530. Oil-linked currencies, such as the Norwegian krone and Canadian dollar, gained ground, reflecting their economies' positive energy trade balances. Analysts from Deutsche Bank highlighted the US’s shift from a net energy importer to a net exporter as a factor supporting dollar strength.

Gold prices climbed 0.5% to $3,450 per ounce, reflecting its traditional role as a safe-haven asset during geopolitical crises. The rise aligns with investor caution amid broader macroeconomic and security concerns.

While global markets have remained composed in the face of rising geopolitical risks, underlying tensions—from oil price volatility to central bank policy shifts—suggest a delicate balance. Investors are treading carefully, positioning portfolios defensively while awaiting clarity from both geopolitical developments and major economic policy decisions in the coming days.

Source: Reuters

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Economic

China–U.S. Trade War

China Scrutinizes Vulnerability to US Scientific Data Withdrawal

In the wake of US President Donald Trump’s budget cuts that have defunded key federal science agencies and halted the release of several high-value datasets, Chinese ministries are undertaking a discreet but urgent review of the impact on domestic scientific research. Sources familiar with the matter indicate that institutions such as the Chinese Academy of Sciences, China Meteorological Administration, and Ministry of Natural Resources are assessing their dependence on US data systems that have long underpinned global environmental studies.

One key loss has been access to the US National Oceanic and Atmospheric Administration’s (NOAA) coastal temperature data, vital for research in areas such as coral bleaching in the South China Sea. This decommissioned dataset, though technically still available in alternative formats, no longer offers the user-friendly access scientists previously relied on. According to former NOAA researcher Craig McLean, the absence of its original presentation interface makes analysis more time-consuming and less intuitive, especially for international scientists.

Data as a Geopolitical Leverage Point

The strategic nature of data—especially in environmental and climate science—has taken on new importance as geopolitical competition intensifies. China's leadership, under President Xi Jinping, views climate and weather as domains of geopolitical influence. Over the past decade, Beijing has boosted its investments in climate diplomacy by nearly 500%, using financing and infrastructure support to promote Chinese meteorological technologies abroad.

Trump’s data restrictions come at a critical time for global scientific collaboration. While Washington and Beijing are still negotiating a broader economic détente, including easing restrictions on the flow of goods and research, these data cuts introduce a new friction point. Chinese authorities are proceeding with caution, avoiding public criticism of the US in order not to offer bargaining leverage in trade talks.

Shifting Toward Scientific Self-Reliance

The disruption is expected to accelerate Beijing’s broader push for technological and data independence, mirroring China’s response to earlier US chip export bans. The goal is to replace critical US-sourced datasets with domestic alternatives where possible. However, this transition will not be immediate. Despite growing capabilities, Chinese institutions still rely heavily on the historical breadth and credibility of American data, especially in atmospheric modeling, oceanography, and climate prediction.

This challenge is not limited to China. Analysts from the Australian Strategic Policy Institute warn that US budget cuts affecting data publication will ripple globally, impacting scientific work from Europe to Australia. Fields such as public health, physics, and space science could also face significant constraints due to reduced information sharing.

Mutual Restrictions Create a Global Research Bottleneck

While China laments reduced US transparency, its own tightening grip on sensitive information has drawn parallel criticism. Over the past year, Beijing has limited foreign access to databases on company financials, weather trends, food production, and even academic research. These restrictions have been justified by national security concerns, with Chinese authorities accusing foreign actors of harvesting strategic data via software and intermediaries.

Wind Information Co., one of China’s leading data providers, stopped sharing key corporate data with foreign clients in 2023. Simultaneously, the Ministry of State Security has stepped up public warnings against unauthorized international data transmission, deepening the data decoupling between China and the rest of the world.

Global Science at a Crossroads

China’s internal review of the fallout from Trump’s US data restrictions highlights a critical vulnerability for global science: the growing weaponization of open information. What was once a shared resource for the world’s researchers is now increasingly shaped by strategic competition and national security concerns.

As both nations tighten their grip on critical datasets, the broader scientific community risks fragmentation, with researchers forced to work within siloed national systems. Without a renewed commitment to cross-border transparency, scientific progress—particularly in climate and environmental fields—may slow just as the world faces its most urgent ecological challenges.

Source: Bloomberg

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Economic

Market Reaction Reflects Eroding Confidence in ASX

Shares of the Australian Securities Exchange (ASX) dropped sharply by 4.4% to A$69.58 in early Monday trading, marking their steepest daily decline since March and hitting the lowest level since late April. The sell-off follows ASIC’s announcement of a formal inquiry into ASX’s governance and risk management structures, after what the regulator termed “repeated and serious failures.”

The immediate market response reflects growing investor concern that ongoing operational lapses could further damage ASX's standing as a provider of secure, reliable market infrastructure in Australia’s financial system. If current losses hold, this marks a significant loss of market capitalization and a reputational blow for one of the country’s key financial institutions.

ASIC Targets Governance and Infrastructure Weaknesses

ASIC Chair Joe Longo stated that the investigation will zero in on ASX's “governance, capability, and risk management frameworks,” with an independent expert panel appointed to lead the review. The panel is expected to offer both a diagnosis of systemic weaknesses and recommendations for restoring trust. ASIC also made clear that both it and the Reserve Bank of Australia have lingering doubts about ASX’s ability to ensure operational robustness in its market infrastructure.

The outcome of the inquiry, including any enforcement actions or structural reforms, will be made public, heightening the potential regulatory consequences.

CHESS Project Collapse Casts Long Shadow

Central to the controversy is the prolonged and ultimately abandoned attempt to replace ASX’s CHESS clearing and settlement system with blockchain-based technology. First announced in 2016, the CHESS replacement was touted as a world-first modernization initiative but became a cautionary tale of technological overreach. In November 2022, ASX scrapped the overhaul, citing the project’s complexity and scalability limitations.

In the wake of that failure, ASIC sued ASX in 2024 for making allegedly misleading statements about the viability and progress of the CHESS upgrade. That legal battle, combined with December’s platform breakdown, has continued to erode market confidence.

ASX Acknowledges Failures, Promises Reform

In response to the ASIC inquiry, ASX Chairman David Clarke admitted that trust had been “damaged” and emphasized the company’s efforts toward a broader transformation strategy. However, his statement implicitly recognized that past reforms had not gone far enough to restore operational credibility.

ASX now faces mounting pressure to demonstrate meaningful internal reform and to comply fully with the inquiry process. The regulator’s tone suggests that failure to cooperate—or further disruptions—could result in stronger regulatory sanctions or structural interventions.

The ASIC inquiry represents a critical inflection point for Australia’s financial infrastructure. While ASX remains central to the country’s capital markets, its operational fragility and lack of technological execution have now triggered a public crisis of confidence. The months ahead will test not only the exchange’s resilience but also the broader regulatory system’s ability to enforce accountability in a high-stakes, systemic institution. Investors, regulators, and market participants alike will be watching closely for signs of meaningful reform—or further dysfunction.

Source: Reuters

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Economic

Forex

Safe-Haven Demand Boosts Dollar Amid Middle East Escalation

The dollar gained modestly against major currencies on Monday, supported by investor flight to safety as the Israel–Iran conflict showed no signs of easing. Market participants are increasingly concerned that Tehran may retaliate by targeting the Strait of Hormuz—a critical passageway through which over 20% of global oil shipments flow—raising fears of widespread economic fallout from potential energy supply disruptions.

The US dollar rose 0.14% to 144.3 yen and saw similar gains against the euro, which fell to $1.1534. The greenback held steady at 0.81 against the Swiss franc, while the US Dollar Index (DXY) hovered at 98.25. In contrast, risk-sensitive currencies such as the Australian and New Zealand dollars recorded marginal gains, reflecting fragile optimism.

Fed’s Policy Hold and Soft Economic Backdrop in Focus

While geopolitical risk lifted the dollar in the short term, analysts remain cautious about the sustainability of its strength. Win Thin, global head of markets strategy at Brown Brothers Harriman, noted that “if the Fed delivers a dovish hold as we expect, the dollar is likely to resume weakening due to the worsening fundamental backdrop in the U.S.”

The Federal Reserve is expected to keep interest rates unchanged during Wednesday’s meeting, but investors will closely scrutinize the Fed’s updated economic forecasts. A shift toward lower growth projections and persistent inflation pressures could result in a more neutral or dovish tone.

Chris Weston, head of research at Pepperstone, anticipates that Fed commentary will reflect signs of economic softening. “The shift towards lower growth is very much upon us,” he said, suggesting a careful policy stance from the Fed in light of rising geopolitical tensions and slowing domestic momentum.

Global Central Banks Line Up for Policy Decisions

A packed calendar of central bank meetings across multiple advanced economies is set to shape investor sentiment this week. The Bank of Japan concludes its two-day meeting on Tuesday, with no rate change expected. However, discussions around reducing government bond purchases could emerge as part of a broader push for greater domestic ownership.

Meanwhile, central banks in the UK, Sweden, and Norway are also scheduled to announce their decisions, with policymakers balancing inflation control against economic fragility.

Trade Uncertainty and Tariff Pressures Linger

Despite its modest rise, the dollar has lost more than 9% year-to-date, as investor concerns linger over the Trump administration’s aggressive trade strategy. Key trade deal deadlines loom within the next three weeks, and unresolved negotiations with the EU and Japan are keeping markets on edge.

Talks between Iran and the US regarding Tehran's nuclear program were also postponed following Israel’s surprise airstrike, further clouding the geopolitical and trade outlook.

Commodities and Treasuries Reflect Risk-Averse Positioning

Gold continued to draw safe-haven inflows, rising 0.22% to $3,435.5 per ounce—just below its record high set in April. US Treasuries saw mixed moves, with longer-term yields retreating slightly after a spike on Friday. Investors are evaluating how sustained geopolitical instability could stoke inflation or prompt defensive positioning in fixed income markets.

Markets are entering a high-stakes week dominated by geopolitical turbulence and central bank signaling. While the dollar may continue to benefit from safe-haven flows in the near term, its trajectory will ultimately hinge on the Fed’s tone, global economic resilience, and the course of Middle East tensions. Investors should brace for volatility as competing risks shape market sentiment.

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