Gold Faces Pressure as Iran Conflict Escalates and Oil Nears $100

LONDON (September 8) On Tuesday, the US-Iran conflict reached its 193rd day, with gold futures trading near the previous session’s lows as the Japanese yen continued its sharp rally against the dollar. There are concerns that President Trump may adopt a post-9/11 military strategy if the current economic warfare approach proves unsuccessful.

I find that if it happens, the global economic situation could turn scarier than what is currently going on conflict with Iran has already laid bare deep vulnerabilities, while the whole world is passing through stagflation fear, and global central banks look to go with interest rate hikes, including the US Federal Reserve this month.

Undoubtedly, the yen approached its strongest level of the year after extending a rally that began last week. Traders have increasingly bet that the Bank of Japan will raise interest rates. The move has also helped weaken the dollar, which normally has an inverse relationship with gold.

A weaker greenback makes dollar-priced bullion cheaper for buyers using other currencies. Gold has therefore found support from the currency move even as other parts of the macro backdrop remain challenging.

The latest recovery comes after gold fell sharply last week and has since traded mostly around the $4,400 level. The metal has remained in a relatively narrow range since rebounding from a floor near $4,000 in July.

On Tuesday, oil prices extended gains, with Brent crude holding above $97 a barrel, as investors weighed risks of further disruption to Middle East energy supplies after Iran warned that oil and gas infrastructure across the Gulf could be targeted in retaliation for attacks on its assets.

Currently, Brent crude oil futures are trading up 1.74% at $98.69 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 2.66% to $94.15.

Brent settled nearly 1% higher on Monday after briefly touching $98 per barrel in the previous session.

The latest gains came after a weekend of tit-for-tat strikes between the United States and Iran, including attacks on shipping.

Iranian officials have since warned that U.S. oil and gas interests and other energy infrastructure across the Gulf are vulnerable to retaliation.

"The oil and gas production chain here is sprawling, accessible, and exposed. American oil and gas companies across these waters and facilities share that exposure," Iranian Parliament Speaker Mohammad Baqer Qalibaf said.

"Strike our assets, and you get struck. We’ve already proven it," he added.

The Strait of Hormuz remains the key focus for oil markets. Iran has said it will introduce a new restricted zone in the Gulf and an alternative shipping corridor, raising concerns that tighter maritime controls could further slow tanker traffic through the strategic waterway.

Still, signs of diplomacy have offered some counterweight to the rally. Iran said a deal with Oman over arrangements for the Strait of Hormuz was close, potentially providing a mechanism to ease shipping disruptions.

But markets remain skeptical that diplomacy will quickly end the wider U.S.-Iran confrontation.

The conflict has already pushed Brent sharply higher. The benchmark gained 8% last week, while WTI rose nearly 10%.

The proposed restricted zone would begin where the U.S. blockade of Iran ends and extend into the Gulf, Rezaei said earlier on state television. Iranian officials have said vessels entering the zone could be placed on an Iranian sanctions list, while Tehran plans to announce maps for a new shipping corridor through the Strait of Hormuz.

Meanwhile, Houthi militants launched a wave of attacks on Saudi Arabia on Tuesday, injuring 73 people, according to Saudi authorities. The attacks targeted several locations in the kingdom and heightened concerns that the conflict could spread to Gulf states hosting U.S. military forces.

The escalation came as Tehran stepped up warnings against Washington after U.S. forces struck three Iranian oil tankers on Saturday. Iranian state media said Iran had fired the Qassem Basir missile at several U.S. vessels near the Strait of Hormuz. The U.S. military said its warships evaded the missile attacks.

According to the latest reports, US looks for another post-9/11 strategy, as in offices across the military and in the intelligence community, there have been recent quiet discussions about cutting the number of people and facilities typically stationed in the Middle East if the Trump administration succeeds in ending the Iran conflict, six sources say.

If those cuts happen, it would mark another shift in how the US national security apparatus treats a region that successive presidents have sought to leave behind.

In the wake of the September 11, 2001, attacks, the US exponentially expanded a constellation of permanent military and intelligence facilities to fight wars and conduct strikes in half a dozen countries: Iraq, Afghanistan, Syria, Iran, Yemen, and Libya.

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