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Gold prices rose by as much as 2.7 percent in dollars following news that the United States and Iran had reached a ceasefire and that the Strait of Hormuz would be reopened. Financial markets breathed a sigh of relief. Gold and silver prices are moving higher as hopes grow for an end to the energy crisis and central banks may begin cutting interest rates sooner. Silver even rose by as much as five percent. The key question hanging over the market: will this ceasefire hold?
Just hours before Trump’s ultimatum to Iran was set to expire, it emerged that a ceasefire had been agreed. The intention is for Iran and the United States to lay down arms for two weeks, using that period to work toward a definitive end to the war. Trump said he would suspend all bombardments on Iran for two weeks, provided Iran guarantees a “COMPLETE, IMMEDIATE and SAFE OPENING of the Strait of Hormuz,” the US president wrote on social media.
International markets are breathing a sigh of relief. Stock markets are rallying, led by European equities; Germany’s DAX even rose by 5 percent, while oil prices fell by 16 percent.
Although some analysts had expected another TACO moment (Trump Always Chickens Out), many questions are also being raised about the current ‘deal’, of which many details remain unknown. The main concern is that Iran may continue to exert control over the Strait of Hormuz as a result of the war, with rumors that Iran could even impose tolls on passing oil tankers: “It is highly unlikely that Iran will give up its newly acquired control over the Strait of Hormuz,” said Clayton Seigle of the Center for Strategic and International Studies in Washington.
Meanwhile, it is being suggested that the United States has not emerged from the conflict as a winner and has lost international standing due to the Iran war: “It certainly cannot be called a victory that the United States has achieved none of its military objectives,” an analyst told Bloomberg TV. The same article notes that in Russia, China and Europe alike, it is observed that America’s overwhelming military superiority has failed to topple the Iranian regime, and that Trump is not the strong negotiator he claims to be. How this loss of prestige will play out remains unclear, as does whether a real solution to the Iran war will be found.
While the gold price typically rises during periods of geopolitical tension, that was not the case in recent weeks: the price initially remained stable before correcting sharply. This is because gold acts as a safe haven in specific situations: when confidence in monetary institutions is low and when central banks purchase gold to protect against geopolitical risks.
This is different in periods of high inflation expectations, which typically follow an oil crisis. If high inflation is expected, central banks may raise interest rates, making interest-bearing assets such as government bonds a more attractive safe haven than gold. Now, with a ceasefire and a possible end to the oil crisis in sight, expectations appear to be shifting, and precious metals are once again posting gains.
Swaps point to rapidly changing market expectations: after the start of the Iran war, expectations for rate cuts declined, but overnight they have risen again (Source: Bloomberg)
Last week, we discussed the relationship between real interest rates and the gold price. Lower interest rates are favorable for gold. Before the Iran war, markets still expected two rate cuts in 2026; due to the energy crisis, that expectation was scrapped.
Immediately after the news broke, swaps (overnight-indexed swaps) moved into negative territory. These swaps are essentially bets in which traders indicate whether they expect the Fed (the US central bank) to cut or raise interest rates. This shows that markets estimate a 60% probability that the Fed will indeed cut rates again this year. That is a positive signal for precious metals.
Given that there is still significant uncertainty surrounding the Iran war, gold and silver prices are likely to remain volatile. “In the short term, gold remains highly sensitive to political developments,” said Assiri, investment strategist at Pepperstone Group. “The current ceasefire provides a brief moment of relief, but it is very fragile. Any sign that the situation around Hormuz deteriorates could trigger significant volatility.”
How is the Iran war viewed in China, one of the largest markets for both retail and institutional gold investors? An internal note to clients from UBS references discussions with institutions and investors in China. The Swiss bank notes that most Asian counterparts still expect further upside for gold. However, most discussions focus on timing: has the bottom been reached, or is it better to wait?
Chinese retail investors are investing in gold ETFs at record levels (source: Apollo Academy)
Three key developments in China itself are positive for gold:
These are all important steps toward the institutional adoption of gold. According to a recent report by Apollo Academy, China’s real estate crisis is playing a key role in the growing demand for investments such as gold. Despite rising prices, investments in precious metals remain surprisingly strong in absolute terms. In addition, Chinese trading in paper gold ETFs has reached record levels.
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