Israel-Iran conflict: Why haven't gold prices in Dubai spiked yet?
Investors weigh safe haven demand against inflation, rate cut concerns as tensions grow
Dubai: Gold is often seen as a safe haven in times of global turmoil. But even after the US and Israel jointly launched attacks on Iranian nuclear sites over the weekend, gold prices have held steady near $3,355 an ounce.
"The opening on Monday saw gold prices uncharacteristically fall amid demand for safe-haven assets like the dollar. The downside risk for the bullion may be limited if the tensions continue to escalate into a broader conflict," explained Vijay Valecha, Chief Investment Officer, Dubai-based Century Financial.
This has surprised many, especially with fears of retaliation by Iran and the possibility of regional fallout. So, why hasn't gold shot up further?
Why hasn't gold surged – yet?
There are two key reasons why gold prices haven't jumped dramatically:
No clear sign of full-scale escalation
UBS, in its latest research note, believes there's no immediate risk of a prolonged conflict. “We don’t see a prolonged disruption to oil supplies, as there’s no likelihood of a full US-Iran escalation,” it noted.Iran hasn’t retaliated in a major way so far, and its allied militia groups across the region haven’t stepped in either. Russia and China, while voicing concern, have also avoided taking any military position.
Inflation fears, US policy hold back gains
Although geopolitical tensions usually boost gold, a sharp rise in oil prices could also raise inflation, which might force the US Federal Reserve to delay interest rate cuts. That’s bad news for gold, which doesn’t pay interest and often struggles in high-rate environments.“The market's still not convinced that the US attack on Iran will ultimately lead to a significant rise in geopolitical tensions,” said Daniel Hynes, strategist at ANZ Banking Group. “That’s why we haven’t seen investors rush to gold or other safe havens yet.”
"Investors are awaiting today's PMI figures for fresh insight into US economic health, as these will influence expectations regarding the Federal Reserve's projected two interest rate cuts this year, a scenario that would benefit non-yielding assets like gold," added Valecha.
Effects on UAE gold shoppers, investors
Gold remains close to its all-time high, and many UAE residents have been keeping a close eye on rates at jewellery stores and exchanges. (Check live Dubai gold prices here.)
While current prices are elevated, they haven’t gone into panic-buying territory. For now, UAE gold buyers can expect stable – but still premium – rates unless the situation in the region deteriorates further.
When can gold rise sharply?
According to UBS, gold could still shoot up – but only if tensions worsen dramatically.
The Swiss bank sees gold touching $3,500 an ounce, or even $3,800, in what it calls a "risk-off" scenario, where investors pull back from stocks and seek safety in gold.
In that case, here’s what could drive the rally:
A direct Iranian attack on US bases or allied energy infrastructure
A military escalation beyond airstrikes
A major disruption to oil shipments through the Strait of Hormuz
Delay in interest rate cuts by the US Fed, keeping real rates lower for longer
Gold also benefits when the US dollar weakens, and UBS sees that trend continuing as global investors reduce their reliance on the greenback due to slower US growth, higher fiscal spending, and political uncertainty.
“We expect the trend of US dollar weakness to continue over the medium term,” UBS added, noting that lower real interest rates and geopolitical risks will keep supporting gold as a hedge.
Bottom line
Gold prices are currently steady because markets believe the conflict won’t escalate much further – at least for now. But that can change fast.
For UAE buyers and investors, this means keeping a watchful eye: while prices are already high, any sudden escalation could push them much higher. But unless that happens, current levels may offer a breather – or even a buying opportunity – for those who believe in gold’s long-term role as a safe-haven asset.
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