US-Iran tensions send markets into panic mode

Global markets are preparing for potential fallout after the US conducted strikes with B-2 Stealth Bombers on three Iranian nuclear sites over the weekend and has since claimed the attacks "obliterated" Iran's nuclear capabilities.

IG market analyst Tony Sycamore said that while the US insisted the strikes were aimed at halting Iran's nuclear ambitions and not a regime change in the nation, US President Donald Trump's rhetoric suggests the potential for further action.

"From Israel's perspective, it may push for additional US support to ensure Iran's nuclear program remains crippled and a more friendly regime in Iran is installed," Sycamore said.

"Iran has vowed to respond, with officials warning of 'everlasting consequences'. Possible actions include missile, or drone strikes on US or Israeli targets, cyberattacks, or asymmetric attacks via proxies like Hezbollah or Houthi rebels, though their capabilities are weakened."

Sycamore said Iran may consider disrupting global trade by closing the Strait of Hormuz, though he said that action is unlikely due to the impact it would have on China and India, with which Iran does a lot of trade.

The major concern amongst investors is significant changes in the price of oil.

"While most flashpoints in the Middle East over the past five decades generally cause only temporary spikes in oil prices, the largest and longest-lasting increases typically arise from regime changes," Sycamore said.

"At this point, the market response has been one of caution as we await further details on what comes next and, more precisely, what the response from the Iranian regime will be."

Likewise, deVere Group chief executive Nigel Green said markets are bracing for sharp volatility - particularly when US markets open on Monday local time.

"The US strike on Iran's nuclear sites is a market-defining moment. It's a direct hit to the assumptions that have been driving investor positioning: lower inflation, falling rates, and stable energy prices. This framework has just been broken," Green said.Green added that brent crude had already been climbing steadily in recent weeks, but further rises in prices could send global inflation higher again.

"Such a price shock would filter through to global inflation, which remains elevated and/or sticky in many regions. Market participants had been pricing in rate cuts from central banks including the Federal Reserve in the second half of the year. That is now in question," Green said.

"A sustained surge in oil makes rate cuts very difficult to justify. If inflation spikes back up, monetary policymakers will be forced to hold, and possibly even reconsider the easing cycle altogether.

"That fundamentally changes the landscape for equity sectors, currencies, and credit."

Meantime, the price of gold rose following the US attack on Iran and with traditional markets closed, crypto gold tokens-digital assets backed by physical bullion-were the only instruments available to trade on the news.

Leading tokens PAXG and XAUT jumped as much as 1.57% before paring gains, with trading volumes surging more than 180%, according to ETF Shares chief investment officer David Tuckwell.

"Crypto gold markets were the only ones open when the strikes happened, and they lit up immediately," Tuckwell said.

"Remarkably, the futures markets then took their lead from blockchain-traded gold. It's a sign of how these products are starting to shape global price discovery. We expect that role to expand-across both commodities and other asset classes."

Despite the serious escalation in the Middle East, Tuckwell warned that gold prices already appear stretched.

"Geopolitical risk has been elevated for years. Central banks have been buying aggressively," Tuckwell said.

"Retail flows are strong. And gold has nearly doubled in Australian dollar terms since 2023. At these levels, you have to ask: what more can go right?"

Tuckwell pointed to signs of profit-taking. US-listed gold ETFs saw significant outflows in May, while net long positioning in gold futures has fallen over 20% since January.

"We're not calling the top, but this could be a timely moment to rebalance. The risk-reward here is looking increasingly asymmetric," Tuckwell said.