Oil, gold prices set to flare up as US strikes Iran's nuclear sites

But despite the US hit, the Iran-Israel war is still going on, and Iran has threatened to attack US military installations in the Gulf

Gold and crude oil prices are expected to spike after the United States launched strikes on Iran’s nuclear sites, marking its formal entry into the ongoing Iran-Israel war.

 

The attack, which took place early on Sunday, has deepened uncertainty in global energy markets amid fears that Tehran may block the Strait of Hormuz, a key oil transit chokepoint.

 

According to Iran’s nuclear body, there are no signs of radioactive contamination following the US strikes, which, for now, have been limited to nuclear infrastructure rather than military or civilian targets. Tehran has threatened to retaliate by targeting American military bases in the Gulf region.

 

Analysts anticipate that worsening tensions in West Asia will further disrupt crude oil supplies, pushing prices higher once markets reopen. T Gnanasekhar, co-founder and CEO of Commtrendz Research, said: “Gold is a certain beneficiary and increases in value as global danger continues to rise. This will result in safe haven buying, while crude oil will see supply shocks.” 

 

According to a US official, the strikes were intended as a warning rather than a full-blown escalation. Washington hopes the move will bring Iran back to the negotiating table, with diplomacy still seen as a possible way out of the crisis. However, Iran has shown no signs of backing down, continuing to launch missile attacks on Israel.

 

Ajay Kedia, director at Kedia Advisory, said Brent crude may climb back to its recent high of $83 per barrel. However, he added, if the Strait of Hormuz is closed, there will be huge disruption in crude oil supply, which may take oil prices further up to $90 per barrel.

 

The Strait of Hormuz, a narrow passage between the Persian Gulf and the Gulf of Oman, is a vital artery for global energy. Nearly one-fifth of the world’s daily oil supply -- around 20 million barrels -- passes through it. A closure would severely affect exports from major Gulf producers, including Saudi Arabia, Iraq, the UAE, and Kuwait. 

 

India, which imports a significant portion of its oil via this route, would also be hit hard. Kedia noted that a closure would likely widen the spread between Brent and WTI crude, which currently stands at just over $3 per barrel.

 

Gold prices have already rebounded by over 2 per cent from Friday’s intraday lows. Kedia believes the precious metal may once again test its all-time high of $3,500 an ounce. That said, the market appears to be pricing in potential US rate cuts, which could offer some resistance to gold’s rally. Persistently high oil prices, however, could fuel inflation and limit the US Federal Reserve’s ability to ease rates.

 

In contrast to gold, silver prices may come under pressure. Higher oil prices could disrupt industrial activity, weakening demand for silver, more than half of which is used in industry. This could also see the gold-to-silver price ratio rise once again.