Gold climbs amid Iran and trade uncertainties, dollar also firms

Gold extends gains as geopolitical climate deteriorates

Uncertainty is running high at the start of the new trading week as Iran’s president makes a last-ditch attempt to de-escalate tensions ahead of fresh US sanctions, trade relations between Canada and America sink to a new low, and bond markets are on edge ahead of Kevin Warsh’s Jackson Hole debut.

Underscoring the angst in the markets is the fact that gold and the US dollar are rising simultaneously – a rare phenomenon these days. Gold has been enjoying a fresh lease of life during August, surging almost 15% in the month-to-date and surpassing the $4,600 level. While dovish Fed expectations have helped, renewed worries about US debt have been the main driver of gold's bullish shift.

Treasury Secretary Scott Bessent’s decision to buy back 30-year bonds to prevent yields from rising further seems to have made investors even more nervous. Nevertheless, Treasury yields are slightly lower on Monday, as markets await more details from Bessent on his fiscal consolidation plan.

Oil edges lower as US aims to economically isolate Iran

Bessent is also expected to announce new measures against Iran today, dubbed as ‘economic D-Day’ by himself and the US President. The press conference is scheduled for 17:00 GMT. The new sanctions are expected to mostly be secondary ones, targeting all countries or entities doing business with Iran or facilitating its drone and missile programme.

However, oil prices are trading lower today, with WTI futures down about 1.7% to $85.60 a barrel. Investors seem encouraged somewhat by the Iranian President’s call on Friday for an end to the war with the US. President Masoud Pezeshkian talked of ending the war today while Iran has power and dignity, likely aiming his message at the country’s hardliners.

Still, the chances of a ceasefire deal are extremely low right now and a better explanation as to why oil’s latest rebound is moderating is that Trump appears to prefer to go down the sanctions route than to order fresh military strikes.

Dollar recovers but loonie skids on trade war

The US dollar, meanwhile, is recovering from last week’s three-month lows against a basket of currencies, largely driven by a slide in the Canadian dollar.

The loonie’s one-and-a-half-month rally came to an abrupt end today, weakening past 1.38 per US dollar, after the US and Canada were unable to reach a deal on trade.

Talks broke down after negotiators failed to find compromises on key issues such as auto tariffs, while Prime Minister Mark Carney also found US demands to limit what trade deals Canada can sign with other countries as unacceptable.

With Carney signalling that talks are unlikely to resume before the US midterms, there’s little prospect for the loonie to extend its bullish streak. Moreover, it will be difficult for the Bank of Canada to hike rates in the near term amid the escalated trade tensions with the country’s closest trading partner, potentially keeping the loonie on the backfoot for some time.

Wall Street braces for Nvidia earnings and Jackson Hole

Equities started Monday directionless, although the mood is steadily improving during the course of the European session. US futures are mixed following a positive session on Friday.

AI is at the forefront of investors’ minds, with all eyes on Nvidia’s earnings on Wednesday. Adding to the jitteriness ahead of the crucial earnings are reports that data centre servers containing Nvidia’s AI chips may see price increases of more than 15%, as chip shortages worsen.

Despite the robust earnings growth recorded during Q2, the massive AI investment continues to trouble investors, especially as companies are turning increasingly to borrowing to fund them.

Alibaba and SoftBank are the latest victims as their stocks plunged after they announced share and bond offerings, respectively, while Samsung also slid as its dividend and share repurchase plan was met with disappointment.

However, doubts about the AI trade aren’t the only thing Wall Street has to contend with this week. Fed Chair Kevin Warsh is due to give his first keynote address at Jackson Hole on Friday.

Although there’s low hope of any major policy signals given that this year’s theme at the Fed’s annual gathering of central bankers is on payments innovation, Warsh will likely find it hard to avoid commenting on the recent soft US data and volatility in bond markets. Hence, the week may not end as calmly as it started.