If the two defining investment narratives of the current cycle are heightened political uncertainty and a rising gold price, a war in the Middle East would appear to further support the bullish case for gold.

The yellow metal’s trajectory has not been one way, with declines as the dollar firms and expectations of a US rate cut fade.  But the downward movement is likely to signal a need for dollars more than a loss of confidence in bullion as a safe haven. As one researcher pointed out to Barron’s, “when a trading book gets hit by this type of shock, it’s not unusual to sell your winning positions to cover your losing positions”.

At the same time, surging oil prices made a US rate cut less likely, which could make the USD more attractive in relation to other assets.

In this sense, gold’s very strength can lead to moments of softness, as its liquidity and value make it one of the assets investors often turn to when they need cash.

As Standard Chartered Plc global head of commodities research Suki Cooper said on Bloomberg TV: “Initially, a geopolitical-risk premium can drive gold prices higher but, when there is pressure for cash, gold tends to be one of the first candidates that investors consider — especially when it’s been performing well.”

The reversal of the reversal

By now, we’re used to President Trump making sudden announcement that swing markets. In recent days alone, we’ve seen extreme oil price volatility on Trump’s multiple and possibly conflicting statements about the timeline of the war with Iran.

However, while Trump is often unrestrained in his speech, evidence suggests he has so far allowed himself to be reined in by markets. So much so that the concept of the ‘TACO Trade’ (Trump Always Chickens Out) has entered the mainstream press.

Yet the situation with Iran may ultimately test the limits of that pattern. Unlike previous episodes that could be softened or reversed through rhetoric, this conflict involves tangible developments on the ground that cannot be easily talked away. We may not be at a decisive inflection point yet, but the scale of the confrontation, and the wider geopolitical stakes, suggest that this may prove far more difficult to unwind than earlier TACO style reversals.

Up to now, the Trump White House has been predictably unpredictable. We may be sailing into uncharted waters.

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