Gold Prices Rise Amidst Middle East Tensions: An Overview

On Friday, gold hit a seven-month low, but the drop was short-lived. The previous metal quickly rebounded from its lull by over 1% on Monday as political tensions in Israel and Hamas spurred safe-haven buying. With rising tensions in the Middle East, more are turning to bullion to protect their assets from the uncertainty of the future.

On Sunday, Israel attacked the Palestinian exclave, Gaza, killing hundreds. The attack came as retaliation for one of the most violent attacks in recent history when Hamas killed approximately 700 Israelis and abducted dozens as well. The Hamas rampage was the deadliest in the last 50 years.

Israel responded with air strikes on houses, tunnels, a mosque, and officials’ homes, killing over 400 people, including civilians. According to the Palestinian Health Ministry, over 2,300 were wounded and 413 killed, including 78 children.

“The price the Gaza Strip will pay will be a very heavy one that will change reality for generations,” the Defence Minister of the town of Ofakim, Yoav Gallant, explained. The town suffered casualties, with numerous hostages taken.

U.S. President Joe Biden expressed “my full support for the people of Israel in the face of an unprecedented and appalling assault by Hamas terrorists.”

U.S. Defense Secretary Lloyd Austin ordered the USS Gerald R. Ford Carrier Strike Group to the Middle East to show support. Hamas saw this action as “an actual participation in the aggression against our people,” potentially igniting further conflict.

Numerous airlines have temporarily stopped flights to Tel Aviv, including United Airlines, Delta Air Lines, American Airlines, and Air France. The United Nations became involved as well, appealing for humanitarian corridors to supply food for Gaza.

With tensions heightening, nations around the globe getting involved, and the conflict clearly nowhere near a conclusion, it makes sense that gold has gained traction following the recent airstrike. As conflicts worsen, people want to protect what they have, and gold offers security.

“Gold has regained its safe-haven status following the geopolitical events over the weekend,” Matt Simpson, a senior analyst at City Index, explained.

“We see the potential for gold to head for $1,880, but unless we see bond yields move materially lower, I doubt it can break $1,900 any time soon,” Simpson continued.

The recent events pushed gold well above critical $1,800-per-ounce lines, where it’s been teetering since mid-summer amid high interest rates. The increasing threats of a major war in the Middle East also boosted oil prices, which increased demand for other assets like Treasuries, the U.S. dollar, the Japanese yen, and, of course, gold. While a strong U.S. dollar usually doesn’t bode well for gold, the current conditions are allowing both assets to rise.

Gold quickly rebounded from the seven-month low it hit Friday. We could’ve seen an even larger rebound from gold had the latest set of economic data not pointed toward the potential for further policy tightening.

The recent data reaffirmed the view that the U.S. Federal Reserve may need to keep interest rates higher for longer. With this news, gold’s spike on Friday quickly capped before breaking the $1,900-per-ounce line, as high interest rates typically drag gold demand.

Last week’s economic data directly contributed to gold reaching its seven-month low. September’s figures showed that U.S. employment increased at the highest rate in the last eight months, signifying continual labor market stability. With that being said, the news coming from the Middle East quickly reversed gold’s downward trend.

Moving forward, all eyes will be on the upcoming inflation data due later this week. Positive movement may mean good news for November’s Fed decision, though much can change between now and then.

On Wednesday, the U.S. Federal Reserve’s meeting minutes from September’s gathering will come out, hopefully revealing further insights regarding the committee’s opinions on future hikes. September’s meeting ended with a more hawkish viewpoint on future hikes, though the meeting minutes could reveal something different.

As the meeting minutes and inflation data come out later this week, gold will likely respond appropriately. According to CME’s FedWatch Tool, the current odds of a rate pause in November are 82.3%. The meeting will occur on November 1, with another one scheduled for December.

In other news, gold is not the only precious metal rising amid the Middle East tensions. Silver also gained 0.3% to $21.66 per ounce, and platinum rose a whopping 0.6% to $881.91 per ounce.

As always, investors should consult their financial advisors before making any portfolio decisions.

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