Gold’s value from geopolitical tensions is mostly reflected in its current price, yet keep an eye on the Federal Reserve’s autonomy – StoneX’s O'Connell

Gold’s Ongoing Rally: Uncertainty Takes Center Stage

According to StoneX, gold’s extended upward trend is being fueled more by deep-seated uncertainty than by inflationary pressures. While geopolitical tensions—such as the conflict involving Iran—have contributed to gold’s price, much of that risk appears to be already reflected in current valuations. The most significant unknown for gold now lies in the future independence of the Federal Reserve.

Expert Insights on Gold’s Trajectory

During a recent StoneX panel discussion, Rhona O'Connell addressed questions about where gold prices might head amid today’s global tensions.

“Uncertainty is the dominant factor,” O’Connell explained. “While gold has long been considered a hedge against inflation, professional investors now often prefer the TIPS index for that purpose. In fact, gold has lagged behind inflation when measured in major currencies, only surpassing its 1980 inflation-adjusted high when it broke through $3,700 last year.”

Uncertainty: The Driving Force Behind Gold Investment

O’Connell emphasized that today’s gold demand is rooted in a broad sense of unpredictability, especially regarding geopolitics. “Uncertainty covers a wide range of issues, with geopolitics—beyond just military conflicts, including tariffs—being the most influential,” she noted.

She pointed out that much of this unpredictability stems from the highest levels of U.S. leadership. “At this moment, it’s impossible to predict what policies will emerge from the White House in the next two days, let alone over the coming months,” O’Connell said. She also mentioned that Trump is likely aware of the delicate balance in Congress and the importance of policy consistency to maintain investor trust as the midterm elections approach.

Geopolitical Events and Gold’s Price Movement

O’Connell observed that the recent conflict in the Middle East has had a relatively modest effect on gold prices. “The shock from Iran only resulted in a brief $300 increase, which is minor compared to a $5,000 base price. This was short-lived, as much of the geopolitical risk was already factored into the market,” she said. Over the past year and a half, both retail and institutional investors have been seeking opportunities to buy on price dips, searching for value.

Distinguishing Price from Value

She stressed the importance of differentiating between gold’s price and its intrinsic value. “These are two separate concepts. Gold’s value remains constant, but its price can fluctuate. When expected price drops of $200–$300 didn’t occur, investors entered the market, leading to a situation where the market is nearing saturation, though not necessarily overcrowded.”

Risks Ahead: The Role of the Federal Reserve

Beyond geopolitical turmoil, O’Connell identified the independence of the Federal Reserve as the main risk to gold at current price levels. “The Supreme Court’s decision in the Lisa Cook case is crucial—not just for the Fed’s internal dynamics, but because the U.S. Constitution’s separation of powers is at stake. If the Court sides with the administration, it could blur these boundaries, raising concerns about monetary policy stability and potentially impacting the Treasury market.”

She concluded, “If there’s one issue I’m watching closely, it’s this.”

Market Conditions and Outlook for Gold and Silver

On March 3, O’Connell wrote that while the Iran conflict, renewed tariff uncertainty under Trump, and higher-than-expected U.S. inflation all theoretically support higher gold and silver prices, both metals are currently overbought and due for a pause.

She observed, “There’s little speculative excess in either metal, as profit-taking in silver occurred in January and COMEX has seen steady liquidation.”

O’Connell added, “This can be interpreted in two ways: either there’s less room for further selling, or market participants believe prices have risen too far. The reality is likely a mix of both. Gold is at the peak of its upward trend with the RSI nearing 70, while silver is resting on a key Fibonacci retracement after a sharp correction. These factors suggest that both metals may need to cool off, though any downside is likely limited. Unless geopolitical tensions escalate further, the market appears ready for a breather.”

She concluded, “In this tense environment, gold and silver should remain strong until the situation stabilizes. Until then, investors are likely to stay cautious.”