(Kitco News) – briefly rallied to session highs as President Donald Trump officially pulled U.S. support from the international nuclear agreement with Iran; however, analysts say that more needs to happen for gold to see sustainable gains.
According to some market observers, Trump’s comment on the agreement, formally known as the Joint Comprehensive Plan of Action, was not a surprise as he has been a major critic even before he became president. Gold prices briefly jumped following the news, but have backed down modestly;last trading at $1,316.20 an ounce, up 0.17% on the day.
Trump continued his criticism of the Iran deal during his press conference, saying that the agreement hasn’t bought calm and peace to the region and it never will. He said that the agreement would eventually cause a nuclear arms race throughout the Middle East.
He described the 2015 international agreement as a “decaying and rotten structure” that is “defective to its core.”
Trump said that his administration will reinstate the “highest level of economic sanctions,” against Iran and any country that supports the regime of terror.
Bart Melek, head of commodity strategy at TD Securities, said that while gold could push to $1,320 in the near-term, markets need more specific information to build a lasting uptrend.
“This means that there is more risk in the world, but the markets need to see how this is going to impact economic growth and interest rate expectations,” he said. “We need to see what happens in equity markets in the next few days to see the true impact on gold.”
Melek added that the market will also need more information on what sanctions will be put on Iran. He noted that so far the U.S. is the only country to pull its support for the nuclear agreement.
Bill Baruch, president of Blue Line Futures, said that he is not surprised that gold bounced slightly off its lows following Trump’s announcement. He added that regardless of the geopolitical outlook, gold at the bottom end of its current trading range represents a good trading opportunity.
John Weyer, Director Commercial Hedging Services, said that while the news will provide some support for gold in the near-term, he personally doubts that the market will be able to hold its gains, unless there is a shift in the global economy that impacts investor sentiment.
He added that one scenario that would be positive for gold is if oil prices push higher, boosting inflation, which would create some risk for economic growth.
So far, the oil market has taken Trump’s announcement in stride. West Texas Intermediate crude futures are down from session highs, last trading at $69.87 per barrel, down more than 1% on the day.
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