Gold gains on Iran war fears, dollar lifted by hawkish Fed minutes

Geopolitical risks flare up over Iran

Tensions are mounting in the Middle East even as US and Iranian officials cite progress in the talks being held in Geneva aimed at reaching a nuclear deal. Growing reports that Washington is on the verge of ordering military strikes on Iran contradict the official US line that “progress was made, but there are still a lot of details to discuss”, while the Iranian delegation sounded a little more upbeat.

According to Axios, the US is much closer to launching a full-scale war with Iran, amid the heavy military buildup in the region, in a possible weeks-long campaign. President Trump has reportedly held a meeting with his top advisors to discuss the options amid worries that the Geneva talks are going nowhere.

There’s a good chance that this is all just another tactic by the US side to exert pressure on Tehran as negotiators meet, but there’s also a sizeable risk that the Trump administration increasingly sees regime change as the only way forward with Iran, something that Israel has been calling for.

Gold and oil boosted by growing threat of Iran conflict

Investors are erring on the side of caution, however, flocking to the safe-haven gold, as well as towards oil, which would likely surge if there’s a major disruption to supply from the world’s ninth biggest oil producer. Furthermore, if Iran were to block the Strait of Hormuz in retaliation to any military escalation with the US, supply from other countries would be affected too.

WTI oil futures are up about 1.5% today, following a 4.6% increase yesterday, and are currently trading near three-week highs at $66.15 a barrel.

Gold rallied by 2% yesterday but failed to close above $5,000 as the stronger dollar weighed on the precious metal. But it’s making a fresh bid today.

Fed minutes signal hawks are firmly in control

The US dollar is also on the front foot, climbing towards two-week highs on the back of yesterday’s minutes of the Fed’s January FOMC meeting, mirroring the moves in Treasury yields.

The minutes appeared to reinforce the Fed’s hawkish tilt in January, with most officials becoming less worried about the labour market and more uncomfortable about inflation staying above the 2% target for too long. Some within the FOMC even suggested they would back a change to the Fed’s forward guidance to signal that a rate hike would be warranted if inflation doesn’t fall to target soon.

Disappointingly, few seem ready to join Miran and Waller in voting for a rate cut apart perhaps from Michelle Bowman who wasn’t convinced by last week’s strong jobs report, following remarks made yesterday.  

The hawkish minutes were supported by Wednesday’s solid batch of US data that included durable goods orders and industrial production numbers. More Fed speakers will be on the wires today, although markets are mostly focused on tomorrow’s advance Q4 GDP estimate and PCE inflation readings for December.

Aussie and kiwi pare some losses

Japan also enjoyed strong data prints, with machinery orders soaring by 19.1% m/m in December. Yet, the yen is broadly weaker today, holding steady only against the dollar.

The Australian and New Zealand dollars are recovering the most versus the greenback. The aussie was lifted by another hot jobs report out of Australia, while the kiwi found support from comments by RBNZ Governor Breman, which were somewhat more hawkish during a parliamentary hearing than the prior day when the central bank kept rates unchanged.

Wall Street buoyed by tech rebound

In equity markets, major indices are moving lower on Thursday amid increased caution ahead of tomorrow’s US data, with tensions over Iran and the Fed’s hawkish lean further keeping risk appetite in check.

Nonetheless, yesterday’s gains on Wall Street allayed concerns that the AI selloff could resume soon, as all three major indices closed higher. Nvidia, which reports its latest earnings next week, led the gains, rising by 1.6% after signing a multi-year deal with Meta to supply the latter with its AI chips.

Amazon was another big gainer, but the focus today will be on Walmart, which will publish its Q4 earnings before US markets open today.