Gold back over $5,100/oz, silver surges 5% as US-Iran tensions escalate

Renewed geopolitical tensions between the US and Iran pushed gold prices higher on Wednesday, extending the yellow metal's recent upward trend. 

This safe-haven buying contributed to the gains, following gold's previous session, which marked its best single day since 2008.

The already escalating tensions between the US and Iran witnessed a direct confrontation in the Arabian Sea on Tuesday, as the American military confirmed the downing of an Iranian drone. 

Geopolitical flare-up and diplomatic back-channel

The incident occurred after the unmanned aerial vehicle (UAV) "aggressively" approached the USS Abraham Lincoln, a US Navy Nimitz-class aircraft carrier operating in the area. 

This event underscores the volatile security environment in the Gulf region, a vital international maritime corridor.

The downing of the drone is particularly noteworthy as it comes amidst a delicate diplomatic backdrop. 

Despite the military flare-up, back-channel diplomacy appears to be in motion.

According to an announcement made by Axios reporter Barak Ravid on Tuesday, citing an Arab source, crucial nuclear talks between the United States and Iran are scheduled to take place in Oman on Friday. 

These prospective talks are seen as a critical effort to de-escalate the broader crisis and potentially revive the 2015 Joint Comprehensive Plan of Action (JCPOA), which the US withdrew from in 2018.

Safe-haven and fundamentals

“Safe‑haven demand, ongoing central‑bank buying, and the outlook for real rates remain supportive over the medium term,” Ewa Manthey, commodities strategist at ING Group, said in a note. 

Central banks have continued to be substantial net buyers, despite a slight decrease in their purchases last year. 

At the time of writing, the gold contract on COMEX was at $5,102 per ounce, up 3.4%, while the silver contract was at $87.343 per ounce, up 5% from the previous close. 

Silver prices have also extended gains on Wednesday, mirroring the rise in gold prices. 

Silver prices on COMEX reached a record high of $120 per ounce last week, but fell sharply along with gold on Friday.

The losses continued on Monday, which saw prices coming down to below $75 an ounce. 

Gold prices had fallen from a record peak of $5,600 an ounce to below $4,500 per ounce. 

Despite the likely continuation of high volatility, silver's medium-term fundamentals are expected to stay largely consistent.

The market remains supported by structurally tight physical balances and industrial demand driven by electrification.

“At the same time, silver’s higher volatility means it is likely to remain more sensitive to shifts in sentiment and positioning than gold,” Manthey said. 

ETF demand remains a crucial driver of prices, even as holdings have declined for eight consecutive days.

US shutdown and Fed rate cut hopes

Elsewhere, US President Donald Trump signed a spending deal into law on Tuesday, bringing an end to the partial government shutdown.

Source: ING Research 

This shutdown has caused delays in the release of key labor data reports originally scheduled for this week.

Meanwhile, investors are anticipating at least two interest rate cuts from the Federal Reserve in 2026. 

The market is now looking ahead to the release of the ADP private payroll data later in the day for further insight into the Fed's future policy direction. 

Non-yielding assets like bullion typically see improved performance when interest rates are lower.