The financial markets experienced a volatile session yesterday, triggered by statements from the US President. Initially, signals of a potential escalation in conflict emerged as the US issued a so-called 48-hour ultimatum to Iran, intensifying sell-offs in stocks, gold, and bonds. The sell-off in precious metals was particularly sharp, with gold plummeting as much as 8% intraday, erasing all its gains for the year. However, the situation quickly reversed. Following what was described as "productive discussions" with Iran, President Trump announced a postponement of planned energy strikes against Iran and set a new negotiation deadline of five days.
President Trump declared a five-day delay to the previously threatened attacks on Iranian nuclear facilities, stating on Monday that both sides had engaged in "productive talks." Nevertheless, an Iranian official ruled out the possibility of negotiations, while the Wall Street Journal reported that US allies in the Persian Gulf might be drawn into the conflict.
As investors weighed these conflicting statements regarding the Middle East conflict, gold, which had rebounded from a four-month low the previous day, failed to sustain significant gains during Tuesday's Asian trading session. From the market's perspective, the US decision to delay strikes on Iranian energy infrastructure only provided temporary relief to the sharp decline in precious metals witnessed during the war period. The conflict has driven energy prices higher, exacerbating inflation risks and prompting investors to liquidate highly liquid and profitable gold positions in favor of other assets.
Conflict-induced high energy prices have heightened inflation risks, leading investors to sell relatively liquid and high-yielding gold and shift capital elsewhere. Gold fell nearly 2% in the previous trading session, marking its ninth consecutive day of declines. A tenth straight drop would set a record for the longest losing streak. From the outbreak of war in late February through Monday's close, the price of gold has fallen nearly 17%.
Despite the announced pause for talks, uncertainty remains regarding the outcome of any negotiations and the future passage of vessels through the Strait of Hormuz. Even existing damage to energy infrastructure will require time to rebuild. This means the inflation threat persists, and markets anticipate that the Federal Reserve and other central banks will raise interest rates—a development that negatively impacts non-yielding precious metals.
A similar dynamic occurred after Russia's invasion of Ukraine in early 2022, when safe-haven commodity prices initially spiked but then experienced a months-long decline as the energy price shock reverberated through markets, amplifying inflationary pressures. Institutions note that gold's performance in 2022 mirrors its behavior during the 2008 global financial crisis. "Short-term price fluctuations depend entirely on positioning," but the long-term drivers for gold remain unchanged.
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Why haven't Trump's "negotiation signals" reversed the gold price trend?
It can be argued that the core contradiction in the current gold market is clear: the price of gold is no longer merely a "thermometer" for geopolitical risk but is caught in the tug-of-war between "inflation and interest rates," reflecting the market's pricing of the Federal Reserve's policy path.
Although Trump sent positive signals, Iran quickly dismissed the talk of negotiations, but "this is almost irrelevant"—Wall Street's interpretation is that Trump is eager to end the war.
The market has developed increased immunity to "verbal de-escalation": after multiple reversals, investors are no longer easily convinced by one-sided "negotiation signals." The market requires substantive progress, such as confirmed US-Iran talks, specific arrangements for the resumption of traffic through the Strait of Hormuz, or a clear timeline for rebuilding damaged energy infrastructure. As long as these are not realized, the inflation threat remains.
The US move represents "tactical de-escalation" rather than a strategic shift: Trump's announcement of talks likely has multiple motives—buying time for military deployments, gauging Iran's response, mitigating the economic impact of high oil prices domestically, or even creating divisions within Iran. This strategy of "using talks to increase pressure" does not eliminate fundamental geopolitical risks; it merely tempers the intensity of the conflict temporarily.
Therefore, unless clear and definitive signals emerge of genuine peace talks between the US and Iran, a trend reversal in gold prices is unlikely. A sustainable rebound in gold will not be triggered by "Trump saying something conciliatory again" but requires one of two conditions: either oil prices rise high enough to severely impact the economy, forcing a shift in Fed policy expectations, or tangible progress is made in US-Iran negotiations, leading to a substantial decline in oil prices. Until then, gold prices will remain in a bottoming phase, pressured by the dual forces of inflation and interest rates.