Escalating Geopolitical Tensions Haven't Moved Gold Prices. Here's Why Some Experts Think They Could Still Climb This Year

Spot gold prices are roughly flat since the start of the second half of the year.

The price of gold has done very little this year. One analyst observes that it has benefited historically from seasonality that could lift prices in the coming months. Still, re-escalating tensions around the Strait of Hormuz represents downside risk for precious metals, a commodity analyst said.

The U.S. and Iran are back to fighting. Gold remains unmoved. Spot gold prices are at around $4,000, leaving the price of the precious metal essentially flat since the start of the second half, and down more than 5% year to date. Silver, which recently traded around $59, also hasn’t done much in the last couple of weeks, and has declined almost 20% so far this year.

A slate of analysts has cut their forecasts on gold prices, pointing to hawkish statements from the Fed, though they still appear to be optimistic that a comeback could materialize in the back half of the year. It just might not be because of the metal’s perceived role as a hedge against geopolitical uncertainty.

One theory for why gold might rise again: It has entered what historically has been its best seasonal period, which lands between the 134th and 207th trading days of the year, according to SentimenTrader’s Jay Kaeppel, which this year runs from July 9 to Oct. 21. (To be sure, Kaeppel also said seasonal trends shouldn’t be viewed as buy or sell signals, but rather a clue to be considered alongside others.)

While gold prices waver, some analysts say there are related opportunities elsewhere. BofA’s Research Investment Committee has made the case for gold mining stocks, which offer high earnings yields and are the cheapest of any sector relative to the S&P in 20 years.

Another trend—the lack of momentum in the gold trade—may suggest a headwind in flagging demand for a subsection of investors. “Chinese retail investors have show strong tendency to follow trends, i.e. buying on the way up and fading when the rally stops,” Citi analyst Kenny said in a Tuesday report. In other words: They’re not interested unless gold does something.

Re-escalating tensions around the Strait of Hormuz, Hu said, and the Federal Reserve “ staying hawkish ” are big downside risks for precious metal prices. Higher interest rates are generally viewed as bearish for gold since they can make interest-paying assets more attractive, and if war in the Middle East means higher oil prices that inflame inflation, the Fed might feel compelled to raise rates.

UBS’ Chief Investment Office in late June called for gold to hit $5,200 over the next 12 months and said recent trading levels were “an opportunity for underallocated investors.” The firm said that the Fed is “unlikely” to raise rates in the near term, that the U.S. dollar stands to be weaker—usually a tailwind for gold, since it can boost demand from international buyers—and that “robust” central bank buying is a “critical pillar of support.”

If spot prices don’t appear that appealing in the near term, perhaps mining stocks will. Bank of America analysts earlier this week said gold miners have 12% earnings yields, the “highest of any sector,” and are the “cheapest” when compared to the S&P in two decades.