The Israel-Gaza tensions continue to impact markets across the globe, with Australian gold prices now reaching record highs. As buyers flock toward safe-haven assets in fear of what many are saying could become a large-scale war, gold enjoys some of its best performance rates this year. Local gold priced in Australian dollars hit its all-time high on October 20, reaching A$3,130 per ounce on Friday morning.
With uncertainty rising on an international scale, the Australian dollar gold price has continued to reach new weekly records.
“More than anything, it’s uncertainty [driving the price up],” Sandra Close, a gold industry consultant at Surbiton Associates, explained when reasoning gold’s recent performance levels. “The sad and difficult situation in the Middle East at the moment … and the uncertainty of that is really, I think, moving the market at the moment.”
Along with the war in Israel and Palestine, the U.S. dollar exchange rate has also helped the precious metal gain more traction in Australia recently. The U.S. dollar has continued to gain value lately, offering a lower exchange rate against the Australian dollar.
“It’s not a record so much in the U.S. dollar price as the Aussie price because our exchange rate against the U.S. dollar is relatively low at the moment,” Close explained. “But given the situation overseas, and particularly in the Middle East, every day, you’re never quite sure what will happen next.”
This movement in gold prices created rippling effects across Australia beyond the obvious investor impacts. The gold-mining industry in Australia has been thriving with the recent performance rates. With Australia being the second-largest gold-producing nation in the world, based on 2022 levels, any increase in production following sharp price increases can greatly impact the world’s supply levels.
Numerous gold mining companies in Australia, including Northern Star Resources, enjoyed excellent price increases as gold prices rose to record levels. Northern Star Resources controls the Kalgoorlie-based Super Pit gold mine, which produces around 800,000 ounces of gold per year. This mine alone accounts for around 8% of Australia’s total gold output.
Northern Star Resources and other companies reported share increases in line with the increased gold prices. Such movement likely spiked some investor interest.
“Because, of course, some of the companies report in Australian dollars on the ASX, others report overseas, and that makes an enormous difference,” Close explained. “But even then, we find that very often even Australian investors tend to follow the U.S. dollar price of gold rather than the Australian dollar price of gold, even though that’s what we’re trading in here.”
Whether investors follow the Australian dollar or the U.S. dollar doesn’t make a huge difference here, as international gold prices have been rising as well. Gold futures have increased by 8.54% in the last month, with the rise primarily driven by the outbreak overseas. On October 5, gold futures sat at around $1,830 per ounce, and by October 20, the commodity hit $1,994 per ounce.
Sandra Close believes that the pricing differential between local gold prices in certain nations and international pricing doesn’t always make sense. Numerous factors can impact a nation’s local gold prices, like the supply restriction scenario we saw in China in September, causing premiums to rise above $120 per ounce over international prices.
“So some have gone up, some of them down, and there’s not always quite a rational reason why,” Close explained.
With that being said, Close does not know how high local Australian prices will continue rising. The current driving factor pushing demand right now is a highly volatile situation overseas, so there’s no predicting how it may play out. Prices could continue spiking at exponential levels as conflicts worsen, or traders could see a peak and decline following typical market trends.
“I think the question is, whether [the conflict is] confined to a couple of countries, or whether it, in fact, spreads a lot further and is a far more difficult situation for the world to handle,” Close explained.
If the war stays confined, fears will eventually settle, and the safe-haven demand will likely diminish over time. On the other hand, if numerous countries get involved and the concept of a third world war becomes reality, fears would reach an all-time high. In that case, there’s no saying what could occur for gold or any other commodity.
“You cannot predict the future, either in respect of just the gold price alone or, indeed, the whole social financial market situation that we all face,” Close concluded.
As always, investors should consult their advisors before making any portfolio moves.
