Gold prices plunged today as nervous investors digested President Trump’s threat of sending Iran “back to the stone ages.”
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Energy Price Shock
The spot gold price was down nearly 3% at $4,622 ending a four-day winning streak, which had been built on hopes that the U.S., Israel and Iran conflict could soon be coming to an end.
Despite President Trump, in his TV address to the nation last night, declaring that the month-long conflict was nearing completion, he said the U.S. would hit Iran “extremely hard” over the next two to three weeks.
The threat to return Iran to the stone ages was taken by some analysts to mean that the U.S. could attack Iranian energy facilities. This could lead to more missile and drone attacks from Iran on the Gulf States and continued disruption to the vital Strait of Hormuz.
Bad News for Gold Stocks
This all powered the oil price higher, which is bad news for gold investors as it increases the chances of higher inflation. That means, in turn, a smaller chance that the Federal Reserve will continue lowering interest rates, which is beneficial to the gold price.
This is so powerful that it has practically canceled out gold’s traditional place as a safe haven for investors and their money during times of global uncertainty. Many have been forced to liquidate their golden position to cover losses elsewhere in their equity portfolios.
“Trump’s speech basically framed the conflict as a military success story, not a ceasefire announcement,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “Gold had an impressive run-up to a $4,800 intra-session high. From here, the momentum may moderate given the possible curtailment of risk appetite on fears of a US ground operation in Iran.”
Gold stock ETFs were also hit hard. The VanEck Gold Miners ETF (GDX) was down over 5% in early trading. Key stock Agnico Eagle Mines (AEM) was 4.68% lower with Newmont Mining (NEM) off 4.34%.
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