(Kitco News) - Geopolitical uncertainty, driven by renewed tensions in the Middle East, has created new momentum in the gold market, and if tensions escalate, prices could easily hit new all-time highs, according to one bank.
In his latest precious metals report published Friday, Bernard Dahdah, precious metals analyst at Natixis, said that after looking at previous conflicts, gold prices could rally 15% on renewed safe-haven demand if the U.S. government’s showdown with Iran escalates.
“Much of the price increase would take place in the first couple of weeks. After which, we expect that prices would start coming off as the market has visibility of the implications and adapts," he said. "Given prices are going sideways, we estimate this could mean $5,500-$5,800/oz in the two weeks following the start of an attack."
Dahdah noted that since the start of the month, as President Donald Trump has increased his aggressive rhetoric toward Iran, gold prices have seen renewed strength. Geopolitical uncertainty pushed prices above $5,000 an ounce last week; however, the precious metal has been unable to hold gains above $5,200 an ounce, even as it maintains elevated support. Spot gold last traded at $5,147.20 an ounce, down roughly 1.5% on the day.
Although gold has room to move higher amid geopolitical uncertainty, Dahdah also warned that safe-haven demand can be extremely volatile and rarely leads to sustained gains.
“Gains are erased as soon as the conflict stabilizes. This can be as short as a few days or a few weeks, even if the conflict lasts longer,” he said.
As for what people should expect in a potential conflict, Natixis said it sees the Trump administration following its newly established playbook, which points to limited action. The French bank expects the potential crisis in the Middle East to last a month.
“Our rationale being that the Trump administration would be more inclined to limit itself to getting rid of the senior uncompromising Iranian figures, whilst keeping the regime structure and security apparatus in place, similar to what happened in Venezuela," Dahdah said. "This would be opposed to the Bush strategy, which sought to impose democracy, such as in Iraq and Afghanistan, where the U.S. dismantled the regime and military.”
