Gold surges as Israel-Iran tensions, renewed tariffs threats support haven flows

LONDON (June 12) Gold (XAU/USD) has emerged as a key beneficiary of US Dollar (USD) weakness, a theme that is expected to drive prices on Thursday. The threat of an escalating conflict in the Middle East after reports that Israel is considering a military strike on Iran and Trump’s latest tariff threats support the precious metal, which benefits from safe-haven flows.

With prices currently hovering around the $3,380 mark, geopolitical risks and the US fundamental backdrop remain in focus. 

NBC news reported, citing five people familiar with the matter, that Israel is considering taking military action against Iran in the coming days. At the same time, Trump confirmed on Wednesday that US personnel are being moved out of parts of the Middle East due to the escalating tensions between Israel and Iran. This occurs ahead of the sixth round of nuclear talks between the US and Iran, scheduled for this weekend. 

Recent headlines surrounding trade also added to the sour market mood. Trump has stated that the US will set its own terms for unilateral tariffs, overshadowing the optimistic narrative surrounding the US-China “trade truce” announced on Wednesday. 

Trump stated that “We will be sending out letters over the next weeks telling them what the deal is”. These comments were reported by Bloomberg on Thursday. 

Looking at the economic calendar, markets prepare for the release of another important inflation print out of the United States: the Producer Price Index (PPI). After Wednesday’s downside surprise in CPI numbers, further confirmation that price pressures are easing could give further impetus to Gold.

Gold daily digest market movers: US Inflation, Fed rate expectations, and central banks' holdings of Gold

• The monthly US PPI report, released by the US Bureau of Labor Statistics, provides insight into inflation trends (price pressures) from a wholesale and business perspective.  Expectations are for Headline PPI to show an annual increase of 2.6% in May, following a 2.4% in April. Core PPI, which excludes volatile goods, is expected to remain unchanged at an annual rate of 3.1% in May.
• This report follows the release of the US Consumer Price Index (CPI) on Wednesday, which showed that inflation at the consumer level continued to ease in May.
• For the Federal Reserve (Fed), softer inflation provides room for interest rate cuts, which in turn, has reduced demand for US Treasury Yields, adding additional pressure on the Greenback and supporting Gold.
• Prior to the US CPI release on Wednesday, the CME FedWatch Tool indicated that analysts were pricing in a 52% probability of a rate cut in September. However, after the release, probabilities have now increased to approximately 70%, with rates still expected to remain within the 4.25%-4.50% range at the June and July meetings.
• The European Central Bank (ECB) released its annual Monetary Euro report on Wednesday, which showed that central bank holdings were 36,000 tonnes, close to the highest levels since the Bretton Woods system. As central banks continue to increase their holdings this year, Gold prices are expected to remain stable in the near term.

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