Middle East chaos won’t drive gold prices to $4,000, but this will - Bank of America

Commodity

Middle East Situation

Summary:

Bank of America sees gold potentially reaching $4,000 per ounce—not due to Middle East conflicts, but driven by rising investment demand, U.S. fiscal concerns, rates volatility, and central bank accumulation.

Gold prices have fallen back below $3,400 an ounce as the conflict between Israel and Iran has not seen regional escalation. But while the precious metal continues its broader consolidation, commodity analysts at Bank of America say it still has a path to $4,000 an ounce.

In its latest report, the bank’s precious metals team, led by Michael Widmer stated that gold retains significant upside potential as investment demand has only just begun to grow. However, the analysts also cautioned that the chaos in the Middle East is not expected to provide sustainable bullish momentum for the yellow metal.

Although gold is a popular safe-haven asset, historically, event-induced demand has never proven to be sustainable. Some analysts note that gold is facing selling pressure at the start of the week, as the conflict has not impacted global oil supplies—an event that would typically drive oil prices higher, influencing inflation and global economic growth.

“When it comes to gold, wars are not always a clear-cut bullish price driver,” the analysts said. “The conflict adds, however, to the confluence of factors that have been supportive for the yellow metal.”

Rather than focusing on specific geopolitical events, Bank of America analysts are monitoring the broader economic landscape and gold’s growing appeal as an important global monetary asset.

This comes as U.S. government debt continues to grow at an unsustainable pace. Bank of America noted that gold is attracting new interest as Congress debates a new spending bill that aims to cut taxes—which is expected to increase the deficit by trillions of dollars.

“Market concerns over fiscal sustainability are unlikely to fade, regardless of the outcome of Senate negotiations,” the analysts said. “Rates volatility and a weaker USD should then keep gold supported, especially if the U.S. Treasury or the Fed is ultimately forced to step in and support markets. As such, while wars and conflicts are usually not sustained price drivers, we see a path for gold to rally to $4,000/oz over the next 12 months.”

Although gold appears a little crowded as prices have consolidated at elevated levels, Bank of America believes it still has room to grow.

“We estimate that investors have allocated 3.5% of their portfolios (including global equity, investment-grade, and high-yield debt exposure) to gold, which does not seem excessive and remains below the all-time highs of 2011,” the analysts said. “Meanwhile, central banks have continued increasing their allocations. Their holdings are now equivalent to just under 18% of outstanding U.S. public debt, up from 13% a decade ago.”“That tally should serve as a warning to U.S. policymakers,” they said. “Continued apprehension over trade and U.S. fiscal deficits may well divert more central bank purchases away from U.S. Treasuries and into gold.”

If demand does remain stable, the analysts expect gold prices to continue consolidating between $3,000 and $3,500 an ounce.

A final supportive factor for gold is the broadening rally in the precious metals sector, as silver and platinum have attracted new bullish momentum.

“Although silver had gone through a period of underperformance, the market has remained in deficit, mainly due to constrained mine supply. Hence, market participants have long anticipated a normalization in the gold-to-silver ratio, which has finally occurred, accompanied by an increase in assets under management at physically backed ETFs,” the analysts said. “We had a price objective of $40/oz for Q4 2025, so that rally arrived a bit earlier than we had anticipated, but we’re sticking with our forecast. If trade disputes normalize and global growth accelerates, silver should take another leg higher.”

Source: Kitco

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Adam

Stocks

Relative calm returned to global markets, with stocks climbing and oil sinking alongside gold as fears subsided that Israel’s war against Iran would escalate into a wider conflict. Equities extended gains on news reports Iran is signaling it wants to restart talks over nuclear programs.

Equities bounced after Friday’s slide, with the S&P 500 up about 1%. West Texas Intermediate crude slid 2.5%, erasing an earlier rally. Treasuries moved away from session lows as the drop in oil eased inflation angst just days ahead of the Federal Reserve decision. Before that, the market will face a demand test during a $13 billion sale of 20-year bonds. The dollar fell.

President Donald Trump said Iran wants to talk about de-escalating the conflict with Israel even as the two sides exchanged fire for the fourth consecutive day. Asked if the US would get more involved militarily, Trump said he didn’t want to discuss it.

Tehran is signaling it wants to de-escalate hostilities with Israel and is willing to resume nuclear talks with the US as long as Washington doesn’t join the Israeli attacks, the Wall Street Journal reported Monday citing Middle Eastern and European officials it didn’t identify. A similar report by Reuters says Iran conveyed the message through Qatar, Saudi Arabia and Oman.

The outbreak of hostilities between Israel and Iran disrupted the momentum that had driven the S&P 500 back near record levels. While markets initially adopted a cautious, risk-off stance to assess how the conflict might unfold, sentiment improved on Monday as investors speculated the attacks were unlikely to draw in more parties.

“Focus will remain on geopolitical headlines, but as long as the conflict stays limited between Israel and Iran, it’s unlikely to materially impact the markets,” said Tom Essaye at The Sevens Report.

Stocks Rise on Reports Iran Wants to Restart Talks: Markets Wrap_1

“Markets got a reminder that tariffs aren’t the only potential source of market volatility,” said Chris Larkin at E*Trade from Morgan Stanley. “Right now, markets are signaling they expect the situation in the Middle East will remain contained, but any surprises could have an oversized impact on sentiment.”

The S&P 500 risks sinking 20% if inflation spikes on the back of higher oil prices, according to a report by RBC Capital Markets strategists led by Lori Calvasina.

In a worst-case scenario, they see the gauge returning to its April lows if the attacks drive up energy prices. And in a less-severe case, the index may fall about 13%, the strategists said.

“The conflict has the potential to generate some additional angst about the health of the consumer, the broader economy, and the path of the Fed, a narrative shift that seems likely to be problematic for stock prices,” the strategists wrote in the note.

Meantime, the trading desk at JPMorgan Chase & Co. led by head of global market intelligence Andrew Tyler said potential pullbacks ahead would present buying opportunities.

They added that the bull case remains in place, assuming tariff relief in the longer term is still underway, but advised caution until there is more clarity on the US involvement in Middle East.

Israel launched an attack on the South Pars gas field, forcing the halt of a production platform, following strikes on Iran’s nuclear sites and military leadership last week. However, critical crude oil-exporting infrastructure has so far been spared and there’s been no blockage of the vital Strait of Hormuz.

While an attack on Iran’s gas production is a concern, the biggest fear for the oil market centers on Hormuz. Middle East producers ship about a fifth of the world’s daily output through the narrow waterway, and prices could soar further if Tehran attempts to disrupt shipments through the route.

Iran is prepared to deliver a “major blow” to Israel following its recent strikes on Iranian cities and targets, Iran’s semi-official Mehr News Agency reported, citing a senior security official. The statement comes as Iranian state TV briefly went off air after an attack disrupted its broadcast.

Tensions in the Middle East will only add to the conundrum that major central banks face as they assess risks to inflation and growth from tariffs and stop-start commerce flows.

Investors will focus most on the Federal Reserve decision on Wednesday, with policymakers signaling an extended hold on rates. Investors and economists will look to Chair Jerome Powell for clues on what might eventually prompt the central bank to make a move, and when.

source : Bloomberg

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Devin

Economic

US president Donald Trump kicked off his first meeting at the G7 leaders summit in Alberta, Canada, by suggesting that Russia should be invited to rejoin the group from which it was expelled following the invasion of Crimea in 2014.

The European members of the group have prepared a wide portfolio of subjects to address at the summit, including proposals to toughen G7 sanctions on Russia. European Commission president Ursula von der Leyen has proposed lowering the G7 price cap on Russian crude to $45/bl and banning imports of refined products made from Russian oil.

But Trump, at the beginning of his meeting with Canadian prime minister Mark Carney today, said that "you spend so much time talking about Russia, and [Russian president Vladimir Putin] is no longer at the table, so it makes life more complicated."

Expelling Russia was a mistake, Trump said, blaming the decision on former US president Barack Obama and former Canadian prime minister Justin Trudeau.

The broader political background is in some ways similar to the G7 summit in 2018, also hosted by Canada, when Trump first told his fellow western leaders they should not have expelled Russia from the group.

Now as then, sanctions against Russia are on the G7 agenda and the US Congress is advancing legislation to target Russia's energy exports.

The key difference is that Trump in 2025 has sufficient control over the Republican majority in both chambers of Congress to block any legislation he does not like. "They'll be guided by me" on the Russia sanctions legislation, he said earlier this month, calling it a "harsh bill".

"At the right time, I'll do what I want to do. But they're waiting for me to decide on what to do," Trump said.

Trump has argued that imposing new economic penalties against Russia would derail the ongoing Russia-Ukrainian peace talks, even though he has acknowledged the negotiations have made no progress.

Trump is scheduled to meet with Ukrainian president Volodymyr Zelenskiy on the sidelines of the G7 summit, the White House said.

Not seeing eye-to-eye on trade, either

Trump's fellow leaders were hoping to push him to roll back the unilateral tariffs he imposed on nearly all US trading partners, but Trump's public comments at the start of his meeting with Carney indicated no willingness to compromise on this issue as well.

"I think we have different concepts," Trump said. "I have a tariff concept. Mark has a different concept, which is something that some people like, but we're going to see if we can get to the bottom of it today. I am a tariff person."

Canada's strong response to Trump's tariffs made him roll back the broad tariffs he imposed on the US' North American neighbors at the beginning of his second term. The bulk of US imports from Canada and Mexico remains duty-free, but Trump's tariffs on steel, aluminum, cars and auto parts do not make an exemption for Canada and Mexico.

The effective US tariff rate on imports from Canada and Mexico — the amount of duties collected from all imported goods divided by their value — rose in April to 2.3pc and 4.1pc respectively, up from nearly zero in January, according to US Department of Commerce data.

Trump is separately meeting with Mexico president Claudia Sheinbaum later today.

Despite a busy pace of meetings with fellow leaders, Trump extended the customary press gaggle at the beginning of his meeting with Carney to take questions on US domestic politics, including his directive Sunday night to the US immigration authorities to carry out massive raids in the largest US cities.

Carney in the end had to cut Trump off, asking him to carry on with their meeting.

"We have a few more minutes with the president and his team, and then we actually have to start the [G7] meeting to address some of these big issues," Carney said.

Source: Argus Media

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Olivia Brooks

Economic

Commodity

Stocks

U.S. stock indexes climbed and oil fell from last week's highs on Monday after conflict between Israel and Iran left crude production and exports unaffected, while investors stayed braced for a week packed with central bank meetings.

Geopolitics loomed large as Group of Seven leaders began annual talks in Canada. Iranian strikes on Israel and a promise of retaliation were followed by a Wall Street Journal report that Tehran was seeking an end to hostilities, against a backdrop of existing international strains prompted in part by Donald Trump's tariff policy.

Markets took comfort after a torrid session on Friday saw oil surge 7% and Wall Street indexes lose more than 1%.

At 10:48 a.m. the Dow Jones Industrial Average (.DJI), was 1.17% higher, the S&P 500 (.SPX), gained 1.16% and the Nasdaq Composite (.IXIC), was also up 1.51%.

U.S. crude fell 3.44% to $70.47 a barrel and Brent fell to $71.63 per barrel, down 3.5% on the day.

"Markets came to the conclusion that for now, the Israeli/Iranian conflict is localized," Andy Brenner, Head of International Fixed Income at National Alliance Securities, said in a note to clients.

Any sustained inflationary impact from the oil price outlook could make the Federal Reserve more nervous about giving too many hints at its Wednesday meeting about interest rate cuts later in the year.

Investors still expect two cuts by December, with a first move in September seen as most likely.

"The key is how much flexibility the Fed thinks it has. We've been pleasantly surprised we've not yet seen inflationary pass-through from the tariffs," said Ben Laidler, head of equity strategy at Bradesco BBI.

U.S. Treasury yields fell after the report of Iran's outreach to Israel, with the 10-year notes yielding 0.9 basis points to 4.415%, from 4.424% late on Friday.

MSCI's gauge of stocks across the globe (.MIWD00000PUS), marched 1.09% higher after the U.S. open.

Earlier in the trading day, Europe's STOXX 600 (.STOXX), had been boosted by a rebound in travel stocks (.SXTP), and Gulf stocks also recovered.

Chinese blue chips (.CSI300), gained after data showed rising retail sales and industrial output in line with expectations. SS

More data, meetings coming

U.S. retail sales data is due on Tuesday and may show a pullback in autos dragging the headline number down even as core sales edge higher. A market holiday on Thursday means weekly jobless claims figures are out on Wednesday.

Central banks in Norway and Sweden also meet this week, with the latter expected to trim rates.

The Swiss National Bank meets on Thursday and is considered certain to cut by at least a quarter point to take rates to zero, with some chance it may go negative given the strength of the Swiss franc.

The Bank of Japan holds a policy meeting on Tuesday and is widely expected to hold rates at 0.5%, while leaving open the possibility of tightening later in the year.

There is also speculation it could consider slowing the rundown of its government bond holdings from next fiscal year.

German government bond yields fell on Monday, with the benchmark 10-year Bunds yielding 2.52%, from 2.536% late on Friday.

The calmer mood across markets saw some of gold's safe-haven bid reverse and it was down 1.04% to $3,396.59 an ounce. .

Source: Kitco

To stay updated on all economic events of today, please check out our Economic calendar

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Adam

The Federal Reserve is widely expected to hold interest rates steady at its meeting this week, but investors will be watching for something else — whether central bank policymakers are still committed to two rate cuts this year.

The Fed’s latest round of projections, released Wednesday, will include the much-studied "dot plot," a chart updated quarterly that shows each Fed official's prediction about the direction of the central bank's benchmark interest rate.

The last dot plot, released in March, revealed a consensus among Fed officials for two cuts this year as some were already factoring the uncertainties of President Trump’s economic policies into their projections. They made the same prediction last December.

Many Fed watchers expect central bank officials to stick with what they have already signaled as they weigh numerous unknowns. The latest curveball came late last week as Israel’s airstrikes across Iran stoked fears that a protracted war could lead to higher oil prices and inflation this summer.

“This meeting will be all about the dot plot,” former Kansas City Fed president Esther George said. Due to how fluid things are at the moment, she predicts that “they will be reluctant to signal changes from where they were earlier.”

Wilmington Trust chief economist Luke Tilley said he isn’t expecting many changes, either.

“I don't think that the dots will change very much, and I don't think the narrative will change very much either. Right now, it's two cuts, and I imagine it will stay pretty much the same.”

'May have to force something'

The Fed and its chair, Jerome Powell, are under an extreme amount of political pressure to speed up the timetable for any cuts, as President Trump continues to hammer Powell publicly for not easing policy sooner.

The president last Thursday said he "may have to force something" as part of his ongoing push for the central bank to lower rates by a full percentage point, but he noted that he would not fire Powell before his term is up in 2026 — a move that would almost certainly be challenged legally.

He also referred to Powell as a “numbskull,” adding to a string of insults coined by Trump in recent months.

Trump has been citing lower inflation as a reason for the central bank to cut. But Powell and many of his fellow policymakers have made it clear in recent weeks they are still more worried about the risks of higher prices from Trump’s tariffs than any rise in unemployment as they weigh both sides of their dual mandate.

EY-Parthenon chief economist Gregory Daco expects Powell on Wednesday to stress the risk of longer-lasting inflation because of tariffs and acknowledge that difficult trade-offs may emerge if inflation stays elevated while growth and employment soften.

He said Powell will likely emphasize that with inflation still above the Fed's 2% target and the job market consistent with full employment, the bar for cutting rates remains high.

“Chair Powell will likely strike a tone of cautious patience, reiterating that policy remains data dependent and that the Fed is prepared to recalibrate policy over time,” Daco said.

The latest measures of inflation have, in fact, shown milder increases in prices even as tariffs were turned on full blast — a trend highlighted last week by Trump and Treasury Secretary Scott Bessent, who told lawmakers last Thursday that “there is no tariff inflation.”

Source: finance.yahoo

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Thomas

Political

Israel and Iran exchanged fire for the fourth consecutive day on Monday, stoking fears of an all-out war with the potential to drag in others in the oil-rich region and force the US into a more hands-on stance.

Iran fired several waves of drones and missiles over the last 24 hours, while Israel continued hitting the Islamic Republic’s capital, Tehran, and killing one more senior military official.

Since Friday, 224 people have been killed in Iran, according to the government, which said most of the casualties were civilians. Iranian attacks killed 24 people in Israel, according to the Israeli government press office, and injured 592.

Tehran is signaling it wants to deescalate hostilities with Israel and is willing to resume nuclear talks with the US as long as Washington doesn’t join the Israeli attacks, the Wall Street Journal reported Monday citing Middle Eastern and European officials it didn’t identify. A similar report by Reuters says Iran conveyed the message through Qatar, Saudi Arabia and Oman.

Oil fell on the WSJ report, with Brent futures dropping around 4 percent - they rose over 10 percent Friday. US Treasuries pared earlier drops and European bonds gained as traders reacted to diminishing concerns about inflation.

It’s not clear whether Israel would agree to stop missile strikes. Israeli officials have said they want to ensure Iran doesn’t have the capacity to build a nuclear weapon.

The exchange of missile salvos between Israel and Iran is the most serious escalation after years of shadow war. Analysts fear it might push the Middle East into a regional conflict, causing wider human loss and potentially disrupting energy flows and vital trade routes.

One missile landed near the US consulate in central Tel Aviv, causing minor material damages but no injuries to personnel, the ambassador to Israel, Mike Huckabee, said Monday. Many cars were crushed and buildings damaged in the area of the city where the strike happened.

For Iran’s government, the showdown poses an existential dilemma. It can’t risk appearing weak, yet its options are shrinking. Proxy forces across the region, which regularly rallied to its support in the past, have been debilitated by Israeli action over the past 20 months. Hezbollah, the Lebanese militia the US and others designate as a terrorist group, is noticeably absent from the conflict and hasn’t signaled it will start attacks on Israel.

Tensions between the arch-enemies erupted into full-blown conflict on Friday, when Israel attacked Iranian military and nuclear sites, and killed several top generals and atomic scientists. Since then, it has achieved air superiority over large parts of Iran, including Tehran, and degraded the ability of the Islamic Republic to defend against its strikes.

Iran has countered by firing drones and ballistic missiles at the Jewish state. Israel believes Iran still has thousands of missiles left, according to National Security Adviser Tzachi Hanegbi, who spoke in an interview with the Army Radio.

US President Donald Trump has sent contradicting signals since the onset of the Israeli attacks. He first urged Iran to reach a nuclear deal and, on Sunday, added it and Israel “should make a deal, and will make a deal.”

“We will have PEACE, soon, between Israel and Iran!” he said on Truth Social. “Many calls and meetings now taking place.”

Yet, shortly after, he also said “but sometimes they have to fight it out.”

Market sentiment at the start of the week was already less bearish before the WSJ report, with analysts betting attacks would subside in the near term.

“The market currently anticipates a limited conflict, though there is little indication that hostilities will end quickly,” said Jochen Stanzl, chief market analyst at CMC Markets.

The potential for disruption of key shipping routes if strikes continue will give policymakers trying to forecast risks to inflation pause. Navigation signals from hundreds of vessels in the Strait of Hormuz and the Persian Gulf went awry over the weekend, forcing seafarers to rely on less precise mechanisms which increase the risk of collisions.

Iran reported an explosion at one of its natural gas plants linked to the giant South Pars field on Saturday. While the country exports little gas and Israel appears not to have targeted its oil fields or crude-shipment facilities, the move risks pushing up global energy prices - which soared on Friday - even more.

The United Nations atomic watchdog convened an emergency meeting to assess Israel’s attacks on Iranian nuclear facilities and disrupted monitoring of the Islamic Republic’s stockpile of near-bomb grade uranium. The International Atomic Energy Agency’s board meets Monday in Vienna, just days after a divisive vote found Iran in non-compliance with its legal obligations.

The IAEA said multiple strikes on Iran’s uranium-conversion facility at Isfahan, south of Tehran, resulted in serious damage.

Iran’s deputy foreign minister, Kazem Gharibabadi, told state television that “we will no longer cooperate with the agency as we did before.”

According to Iran’s Fars news service, a key parliamentary committee said Tehran should no longer adhere to the nuclear Non-Proliferation Treaty, the bedrock arms-control agreement that compels signatories to accept inspections. For now, it’s unclear if the government will take such steps.

Worst Conflict

Arch-enemies Israel and Iran have long maintained simmering animosity. The Jewish state’s been accused of cyberattacks and assassinating Iranian scientists, while Tehran’s funded anti-Israel militias in the Middle East.

Those tensions soared after Hamas, a Palestinian group backed by Iran, attacked Israel on Oct. 7, 2023. That led to Israel and Iran firing missiles and drones on each other twice last year.

Still, this is their most serious conflict yet. Since the fighting began, Israel struck Iran’s nuclear and military sites using jets and drones, and killed several top commanders and atomic scientists.

Several waves of strikes in Iran were conducted overnight, targeting approximately 100 military targets, according to the Israeli Defense Forces spokesperson. He added one third of Iran’s missile launchers have been destroyed.

Israel said it was aiming to end Iran’s ability to build a nuclear bomb, which it sees as an existential threat. Tehran maintains its atomic program has purely civilian purposes.

Trump is set to meet other leaders of the Group of Seven major economies in Canada and the conflict will be at the forefront of their talks. Israel is calling on Washington and European nations to help it attack Iran, arguing that such help is needed to stop Tehran from developing a nuclear weapon.

While the US has helped defend Israel by intercepting missiles and drones, Trump has not yet indicated if the US will join in the strikes on Iran.

For all that Israel’s already damaged Iranian atomic sites and says it will continue to strike them. Several Western analysts say it needs US help to destroy some key facilities located deep underground.

Source: Rigzone

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Adam

Forex

US Dollar started the week on a weak note but has been trying to stay near the 98 level since last week. There has been some buying just below 98, but it has not been strong. Rising geopolitical tensions and a sudden jump in oil prices are driving safe-haven demand and raising concerns about supply shocks.

The main focus is on the increasing attacks on energy infrastructure between Israel and Iran. This conflict could impact not just the Middle East but global demand for the dollar as well.

Iran’s threat to close the Strait of Hormuz puts about one-third of global oil trade at risk. This could push inflation higher again, which is worrying for markets.

If inflation rises, the chances of the Federal Reserve cutting interest rates in the near future may drop. Higher energy prices could make it harder for the Fed to meet its goal of price stability, leading policymakers to wait longer before making any changes.

Fed’s Interest Rate Strategy

Interest rates are expected to stay the same at the Fed meeting on Wednesday. However, the key focus will be on the Fed’s updated economic projections and the wording in its statement. The main question for the dollar is whether the Fed will signal any rate cuts before the end of the year.

Weak employment and growth data from the US have led markets to expect a possible rate cut in September or December. But rising geopolitical tensions and the recent increase in energy prices have slightly delayed these expectations. As a result, markets now see almost no chance of a rate cut in July.

This week’s manufacturing data, retail sales, and unemployment claims will be closely watched. These reports may influence the Fed’s tone. If the data is stronger than expected, it could lead to more strength for the dollar.

US Dollar Outlook Still Fragile

Although geopolitical risks are giving the US dollar some short-term support, the overall outlook for the dollar remains weak. The US Dollar has fallen more than 10% from the 110 level seen earlier this year, and it keeps losing value, especially against EUR/USD and the currencies of commodity-exporting countries.

To be sure, the euro has gained strongly due to the European Central Bank’s cautious approach to cutting interest rates. Meanwhile, currencies like the USD/NOK have benefited from higher energy prices.

At the same time, President Trump’s expansionary fiscal policies, tax cuts, and possible new tariffs could worsen structural issues in the US economy and hurt confidence in the dollar. This may increase the risk of a larger external deficit and raise questions about the dollar’s status as the world’s reserve currency.

In summary, while the dollar gets some short-term support from geopolitical risks and the Fed’s cautious approach, key indicators still suggest a fragile outlook. The US dollar is trading around a critical support and resistance level near 98. If it manages to stay above this level, a short-term rebound may happen. However, in the longer term, the dollar is likely to remain under pressure due to trade imbalances and expectations of rate cuts.

Investors will watch not only the Fed’s decision but also developments in energy prices and geopolitical signals from the G7 Summit. In this period of weak global risk appetite, the dollar’s direction will depend both on US policy and political risks around the world.

Technical Outlook for the US Dollar

The US dollar is still struggling to hold a key support level as its downward trend continues from earlier this year. Based on the recent upward move, the index has now reached the Fibonacci 1.272 level at 97.65.

This zone can be seen as an expansion point in the trend. If the US dollar closes below 97.65 on a daily basis, the decline may continue towards 96.25 and then 94.25.

However, if support at 97.65 holds, the 99.65 level could become important for any short-term rebound. A move above this resistance might signal rising dollar demand, with the potential to push the index toward the 100-102 range. Still, technical indicators are showing weakness in dollar demand for now. As long as the index stays below 99, the risk of further declines remains.