Gold (XAUUSD) Price Forecast: Safe-Haven Demand Surges on Israel-Iran Conflict

Geopolitical tensions and Fed expectations boost gold prices

Gold prices surged on Friday as traders responded to escalating conflict between Israel and Iran, intensifying safe-haven demand and pushing spot gold toward its all-time high of $3,500.20. Israel’s airstrikes on Iranian nuclear and missile sites have reignited fears of broader regional conflict, leading investors to pile into gold, Treasuries, and the U.S. dollar.

On Friday, XAU/USD settled at $3432.84, up $46.25 or +1.37%.

The strikes reportedly killed senior Iranian military officials and two of the country’s top nuclear scientists. Iran retaliated with drone and missile attacks targeting Israel, further inflaming tensions. Analysts now anticipate a prolonged period of instability in the Middle East, with Iranian leadership vowing more retaliation and pulling out of scheduled nuclear negotiations.

Fed rate cut bets reinforced by soft CPI and PPI prints

In parallel to the geopolitical risk premium, recent U.S. inflation data has further supported the bullish gold trend. The Consumer Price Index (CPI) rose just 0.1% in May, below consensus expectations. Core CPI, which strips out food and energy, also came in at 0.1%. Meanwhile, Producer Price Index (PPI) data indicated a mild 2.6% annual rise, helping keep inflation gauges like the Fed’s preferred core PCE on target.

These figures have solidified expectations that the Federal Reserve could resume rate cuts as early as September. Fed funds futures now price in a 25-basis point cut in September and another in October. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, bolstering the case for further upside.

Dollar rebounds but gold remains resilient

The U.S. dollar staged a modest rally on Friday, recovering from multi-year lows as investors sought safety. However, the dollar’s bounce did little to dent gold’s momentum. The Dollar Index was last up 0.3% at 98.19. ING strategists noted the dollar remains structurally weak due to heavy short positioning and dovish Fed expectations, limiting its ability to cap gold’s rally.

Gold prices forecast: Bullish outlook as risk and rate catalysts align

Gold remains in a strong uptrend, underpinned by both geopolitical risk and favorable monetary policy expectations. With Middle East tensions likely to escalate and Fed cuts now firmly priced in, gold has a clear path higher.

Unless diplomatic breakthroughs emerge or inflation unexpectedly surges, the yellow metal looks poised to challenge and potentially break its April record high. The near-term gold prices forecast remains bullish.

More Information in our Economic Calendar.