Gold’s Reaction To Growing Middle East Tensions: A Closer Look

As tensions continue heightening in the Middle East, gold achieved its best performance rates in the last seven months, with investors hopping on the safe haven-buying train to protect their assets from the unforeseen future. Gold jumped by an astonishing 5.2% by the end of last week as Israeli troops set their first ground raid on Gaza, creating additional tensions. On Friday alone, the precious metal gained 3%, allowing it to achieve its best week in the last seven months after struggling through headwinds of high interest rates through all of late spring, summer, and early fall.

Speaking of interest rates, gold gained additional investor demand last week as September’s FOMC meeting minutes revealed more dovish sentiment from the committee regarding future actions. The new information showed that rates may have peaked, which bodes well for gold. High rates increase the opportunity cost of investing in non-yielding assets, like gold, so any hints of cooling borrowing limits can help the precious metal gain more attention.

On Friday, spot gold increased by 3.2% to $1,928.15 per ounce, finally breaking critical $1,900-per-ounce lines by a decent margin. Gold futures in the U.S. also increased by 3.1% to $1,941.50 per ounce. The total gain for the week for gold came to 5.2%, representing excellent performance rates for the precious metal.

The conflict in the Middle East unnerved markets throughout last week. Investors kept their eyes peeled on the situation overseas, ready to shift their portfolios accordingly. Gold landed on the positive side of that shifting, as traders moved investments around to weigh more of their portfolios in safe-haven assets in case of any catastrophic events like the U.S. getting involved in a full-on war.

After Hamas enacted a deadly rampage on Southern Israel at the start of last week, igniting all of these events, Israel began carrying out raids on Gaza in retaliation. Rather than its typical air strikes, Israel shifted to ground operations to reach more Hamas fighters.

This retaliation fueled more safe-haven buying into gold, hence its large gains last week.

Investors are fleeing to safe havens as the risks of Middle East tensions grow,” Edward Moya, a senior market analyst at OANDA, explained.

“If the geopolitical situation gets gloomier, there is a good chance that gold prices could go to the $2,000 levels this year. We have come from mid-$1,800s to mid-$1,900s; $ 2,000 is just a fraction of that,” Moya continued.

“Gold has regained its safe-haven status following the geopolitical events over the weekend,” Matt Simpson, a senior analyst at City Index, chimed in. Simpson previously predicted that gold would not breach $1,900 per ounce any time soon, given bond yield performance rates. Clearly, the precious metal’s performance levels are beyond anyone’s typical expectations.

As we reach day nine of the Israel-Hamas conflict, the meltdown only worsens. Gaza’s only power station ran out of fuel on Wednesday, so the authority now has no power, food, or water.

The border closed on Tuesday following the airstrikes. The U.S. and other nations want to re-open the borders because hundreds of Americans are currently trapped in Gaza.

Numerous major airlines have suspended flights to Israel, including United Airlines, Delta Air Lines, American Airlines, and Air France. The U.S. chose to show support for Israel, which created conflict with Palestine and further complications.

The tensions are nowhere near resolution. Gold’s place as a safe-haven asset will likely remain for the foreseeable future as conflicts only heighten.

In other news, the latest reports from the Federal Reserve also gave rise to gold prices.

“Despite yesterday’s warmer-than-expected (U.S.) inflation report, currently, there is an expectation that the Fed will not hike rates in the November meeting, which is also helping (gold) prices,” David Meger, the director of metals trading at High Ridge Futures, explained.

According to CME’s FedWatch Tool, the current odds of rates staying unchanged in November is 86.1%. If rates stay the same and Fed members mention a cut in the near future, gold could gain excellent support from investors.

Only time can tell how the next meeting will play out. For now, traders can continue assessing the incoming data to analyze how the Fed may respond.

In other news, silver also gained following the recent overseas events. Silver increased by an impressive 4% to $22.72 per ounce, offering its first weekly gain in the last three weeks. Platinum also rose by 1.4% to $880.42 per ounce.

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

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