Gold prices jumped in mid-June as investors piled into “safe haven” assets following Israeli strikes on Iran, and were expected to remain buoyed on Iranian retaliation.
Israel launched air strikes across Iran on June 13, pounding nuclear facilities and missile factories, and killing military commanders, in what could be a protracted series of attacks to prevent Iran from building a nuclear weapon.
Spot gold was up 1.1 percent at USD 3,433.35 per ounce on June 13, coming close to its all-time high of USD $3,500.05 set in April. Prices were up about 4 percent in the second week of June. Gold is seen as a “safe haven” asset, at times of geopolitical unrest and economic turmoil.
Israeli Prime Minister Benjamin Netanyahu has said that Israel would strike “every site and every target” of Iran, after Iran launched waves of missiles in retaliation for the Israeli strikes. Dealers said that while the conflict continued, gold prices were likely to remain well-supported due to expected investor “safe haven” buying.
Separately, softer U.S. inflation data in June underpinned gold prices, raising expectations of U.S. interest rate cuts. As bullion bears no yield, it tends to flourish in a climate of falling interest rates.
Goldman Sachs has forecast that buying by central banks will raise the gold price to USD $3,700 per ounce by end-2025 and to USD $4,000 by mid-2026.
U.S. producer prices rose less than expected in May. Meanwhile, the number of Americans filing new applications for unemployment benefits was unchanged in June as labour market conditions eased. The latest figures followed a cooler-than-anticipated Consumer Price Index report for May.
Traders see a likely September rate cut by the U.S. Federal Reserve (central bank), with a second cut as soon as October. The British pound fell with other currencies on June 13, after Israel launched strikes on Iran, as investors flocked to the relative safety of the dollar.
Sterling dipped to a low of $1.352.
UK Prime Minister Keir Starmer said all parties needed to step back and reduce tensions following the air strikes. The pound has faced weak UK data on manufacturing, employment and economic growth.
UK Finance Minister Rachel Reeves announced a spending review, which analysts said raised the possibility of tax hikes later this year.
The market expects the Bank of England to cut rates by a quarter-point in September and to cut rates again by December, which would bring them down to around 3.7 percent, from 4.25 percent now.
Frequently asked questions
Why did gold prices increase so significantly in mid-June?
Gold prices surged in mid-June primarily due to a rise in safe-haven buying following Israeli air strikes on Iran. On June 13, Israel targeted Iranian nuclear facilities and missile factories, raising fears of a protracted conflict and prompting investors to seek stable assets. As a result, spot gold rose 1.1 per cent to USD 3,433.35 per ounce, nearing its record high of USD 3,500.05 from April.
Additionally, softer U.S. inflation data boosted the gold market by increasing expectations of interest rate cuts. Because gold does not yield interest, it becomes a more attractive investment when interest rates are falling. Lower-than-expected producer prices and stable unemployment claims in the U.S. have led traders to anticipate a Federal Reserve rate cut in September, followed by another potentially in October, further supporting gold’s upward trajectory.
What are financial analysts predicting for the future price of gold?
Financial analysts, specifically those at Goldman Sachs, have issued highly optimistic forecasts for the price of gold over the next couple of years. They predict that continued purchasing by central banks around the world will drive the price of gold up to USD 3,700 per ounce by the end of 2025. Looking further ahead, they anticipate that this momentum will push prices even higher, reaching USD 4,000 per ounce by mid-2026.
This bullish outlook is supported by current geopolitical tensions in the Middle East and shifting economic policies. With ongoing conflict between Israel and Iran, investors are expected to keep buying gold as a safe-haven asset. Furthermore, the anticipation of interest rate cuts by major central banks, including the U.S. Federal Reserve, creates a highly favourable economic climate for non-yielding bullion, reinforcing these long-term upward valuation forecasts.
How are interest rate expectations in the US and the UK affecting financial markets?
Interest rate expectations in both the United States and the United Kingdom are heavily influencing financial markets and boosting assets like gold. In the U.S., softer inflation data and easing labour market conditions have led traders to price in a likely interest rate cut by the Federal Reserve in September, with a second reduction expected as early as October. Because gold yields no interest, falling rates make it more appealing to investors.
Similarly, in the UK, the market anticipates that the Bank of England will cut interest rates by a quarter-point in September, with another cut forecast by December. This would reduce the UK rate to around 3.7 per cent from the current 4.25 per cent. These anticipated rate cuts, combined with domestic economic pressures and a potential tax hike later this year, are reshaping investor strategies across global currency and commodity markets.
What impact has the escalation of the Middle East conflict had on global currencies?
The escalation of the conflict between Israel and Iran has caused notable fluctuations in the global currency markets, particularly affecting the British pound. Following the Israeli air strikes on June 13, investors quickly moved away from riskier assets and flocked to the safety of the U.S. dollar. This sudden shift in investor sentiment caused the British pound to fall alongside several other major global currencies.
Specifically, sterling dipped to a low of $1.352 as capital was moved into safe-haven alternatives. Beyond the immediate geopolitical shock, the pound has also been weakened by disappointing domestic economic data regarding UK manufacturing, employment, and overall economic growth. Furthermore, announcements regarding an upcoming government spending review have raised concerns over potential tax hikes later this year, putting additional pressure on the UK currency during this period of global instability.
Why is gold considered a safe haven asset during times of geopolitical unrest?
Gold is traditionally viewed as a premier safe-haven asset because it tends to retain or increase its value during periods of geopolitical conflict and economic instability. When tensions escalate, such as the recent military actions between Israel and Iran, investors look for reliable places to store their wealth. Unlike fiat currencies or equities, which can be highly volatile and heavily impacted by political crises, gold offers a physical, universally recognised store of value.
This enduring status was clearly demonstrated in mid-June when Israeli air strikes on Iranian facilities triggered a wave of defensive buying, pushing gold prices up by approximately 4 per cent in a single week. As long as geopolitical instability persists and military retaliation remains a threat, investors are highly likely to continue buying gold. This sustained demand provides a strong price floor, confirming its role as a crucial defensive asset during global crises.
