Iran's true intentions are surfacing! This scene could trigger a plunge in precious metals and stock markets, with gold potentially dropping to $4,200.

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As the Iran conflict enters its third week, gold prices continue to stay near $5,000 per ounce. However, market participants are still trying to determine how long this war will last and how far its impact will spread. RJO Futures senior commodities broker Daniel Pavilonis said that if investors believe this conflict will be more severe and last longer than the U.S. government’s estimated “six weeks,” both the stock and precious metals markets could face a new round of significant declines.

In a recent interview with Kitco News, Pavilonis stated that he expects gold and silver to continue following U.S. stock trends in the short term, and that U.S. stocks are inversely related to U.S. Treasury yields. Currently, he believes there is a risk of further downside for U.S. stocks in the near future.

He said, “Everything in the metals market is linked to energy prices, with a focus on the yield curve, especially the 10-year U.S. Treasury yield. As long as yields keep rising, it will put pressure on gold and silver.”

The direction of the conflict will determine the next phase of the market

Pavilonis believes that the coming days will be crucial for the market, as investors may gain clearer insights into the nature, scope, and escalation of the conflict.

He pointed out, “It looks like the U.S. is preparing to deploy Marines to the Middle East, and ground forces may also be involved. But on the other hand, there are signs that some Indian oil tankers are passing through the strait, and we’ve seen at least one pass smoothly. More tankers, including Chinese ships, may follow. If that happens, it essentially means that most of the oil previously transported through the strait is resuming flow, which could help ease tensions and calm market sentiment.”

In his view, the core logic of the current market still revolves around energy transportation risks and interest rate paths. As long as oil prices continue to rise due to risks to energy flows to Europe and Asia, interest rates may also keep climbing, which would weigh on precious metals.

He said, “As long as interest rates keep rising—because oil and energy prices are increasing and the channels for energy to Europe and Asia are at risk—I think metal prices will decline. If interest rates fall back, you might see gold and silver rise, and stocks could also go up. But as soon as oil prices rise again, all assets will come under pressure once more.”

Is Iran aiming to impact regional assets and the dollar system?

Pavilonis also suggested that Iran’s attacks on neighboring countries may not only be aimed at disrupting their oil exports but could also have deeper financial motives—forcing oil-producing countries to sell U.S. debt and other dollar assets to fund their security expenditures.

He said, “I think this is one of Iran’s strategies. Why attack Dubai? Because over 95% of the residents there are not local Dubai nationals. If everyone evacuates, Dubai’s economy could collapse, forcing them to sell U.S. stocks and bonds to secure safety. The main income source for these oil-producing countries is oil, and they typically allocate funds into U.S. Treasuries, U.S. stocks, and gold. When they need liquidity, the first to be sold are bonds and stocks, before quickly reinforcing their own security.”

In his view, the conflict is also exposing some deep cracks in the relationship between the U.S. and Gulf countries, especially regarding security commitments and cost-benefit considerations.

He said, “It’s all about security. The U.S. champions democracy, but why support monarchies? We control the game over there, but if we can’t provide security, and those countries are repeatedly hit by $20,000 drones, why would they hold U.S. assets? Our weapons are the most advanced, but the problem is that this setup might be too expensive—overkill. Iran uses $20,000 drones to strike targets, while we try to intercept them with $1 million missiles.”

Gold and stocks may decline together, oil prices could hit new highs again

Based on the current situation, Pavilonis expects U.S. stocks and precious metals to continue declining in tandem, with silver potentially being more vulnerable.

He said, “Stocks and gold are moving in the same direction right now, especially silver. The stock market looks very weak, and a new decline similar to April last year seems likely. If that’s the case, I also have to assume oil prices will hit new highs or at least return to previous highs.”

He warned that the market might worsen before it improves.

He said, “Before things get better, they might get worse first. Could gold drop back to around $4,200 per ounce? I think that’s possible.”

On Tuesday, spot gold continued to fluctuate around the key support level of $5,000 per ounce, with the trading range narrowing further. By the U.S. market close, spot gold was at $5,005.18 per ounce, down $1.01 or 0.03% for the day.

(Chart source: FX168)

From the current trend, although gold prices show some resilience at high levels, if the Middle East conflict escalates further and oil prices and U.S. Treasury yields rise simultaneously, gold could face greater downside pressure in the short term.

(Note: The content of this article is for reference only and does not constitute investment advice.)

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