Amid the fallout from Iran’s missile attack against Israel on Tuesday, market observers are closely watching the unfolding conflict and its possible effects on gold prices.

What Happened: Iran fired 100 to 200 missiles at Israel on Tuesday. The attack came following several Israeli strikes on the Lebanon-based Hezbollah, an Iranian proxy.

Israel has been at war with Hamas, also supported by Iran, since Oct. 7, 2023, following a Hamas terrorist attack that left over 1,000 Israelis dead. Israel’s subsequent military campaign against Hamas in Gaza resulted in a reported death toll of over 40,000, according to the Gaza Health Ministry.

Iran’s most significant geopolitical rival, Saudi Arabia, has normalized relations with Israel in recent years with American support. The Iranians and Saudis have already engaged in proxy warfare in Yemen, among other countries, for decades. The most recent developments, however, point to a possible direct warfare between Middle Eastern spheres of influence.

The United States and its allies are particularly concerned with Iran’s nuclear development.

Impact On Gold: Investors flock to gold during times of economic and geopolitical uncertainty. Financial markets might experience heightened volatility during such a conflict, with investors seeking safer alternatives. A confrontation between Israel and Iran would likely increase demand for gold, driving up prices.

Further conflict in the Middle East could disrupt oil supplies, leading to higher global energy prices, which might contribute to inflation. Since gold is often seen as a hedge against inflation, this could further boost demand for gold.

While it is yet unclear whether Iran’s attack on Israel will escalate to something larger, any news seemingly pointing in that direction will send gold prices higher.

Gold Price Action: The SPDR Gold Trust GLD, iShares Gold Trust IAU and SPDR Gold MiniShares Trust GLDM are among the largest gold ETFs.

While gold prices moved higher following Iran’s military action on Tuesday, gains quickly subsided. The SPDR Gold Trust is trading just 0.44% higher than it did on Monday.

Gold’s muted price action could indicate one of two things. Investors may already have priced in the likelihood of war breaking out in the Middle East. Thus, Tuesday’s missile attack might not have surprised market observers, who are already weary of possible warfare.

Alternatively, investors could be skeptical of the likelihood of the conflict between Iran and Israel escalating further. Several scares in Middle Eastern relations in recent years have not amounted to large-scale conflict.

Regardless, gold has had a remarkable year, hovering near an all-time high price. The commodity is trading 28% higher in 2024 and has increased 44.17% in the last 12 months.

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