Gold prices have soared to more than $2,000 an ounce for the first time in nearly six months as the ongoing Israel-Hamas conflict has raised the precious metal’s safe-haven appeal. With experts cautioning that the Israel-Hamas conflict could trigger a larger conflict in the Middle East region and impact the global economy, investors are increasingly turning their attention to gold as a hedge against potentially volatile times.
Soon after the Israeli military said it would “expand ground activity” in Gaza, spot gold prices surged by up to 1.2%, putting gold on track to record its most significant monthly gain since mid-2020 when the precious metal hit an all-time high of $2,075.47. In addition, gold bullion prices have increased by close to 9% since the Oct. 7, 2023, Hamas attack that triggered the conflict, rebounding from a low of more than six months.
Safe haven assets such as gold do not depreciate regardless of market conditions, making them a perfect store of value for investors looking to preserve the value of their assets amidst recession and inflation. Many investors who were betting on gold prices sliding even further were caught off guard by the conflict and rushed to cover their short gold holdings, resulting in an initial price boost once fighting broke out in Gaza.
TD Bank’s managing director and global head of commodity strategy Bart Melek said that the Israel-Hamas conflict has caused gold prices to spike, noting that there is a growing risk of it snowballing into a larger conflict. This, coupled with wider geopolitical tensions, likely encouraged the short-covering that led to the spike in gold prices, Melek says.
The recent rally in gold prices goes against the precious metal’s usual trading dynamics. With 10-year inflation-adjusted Treasury yields reaching the highest levels in more than 15 years, gold bullion (which pays no interest) should be facing significant selling pressure.
Most investors would pivot from noninterest-bearing gold bullion to interest-paying assets to take advantage of surging interest rates. However, surging Central Bank demand coupled with haven purchases have supported gold prices even as interest rates have continued to rise.
Ongoing conflicts in Ukraine and Gaza have increased geopolitical tensions and increased the precious metal’s safe-haven appeal. Fears that the Israel-Hamas conflict could trigger an oil conflict have also rattled other markets as it could trigger inflation that would be difficult for central banks to address without harming their economies.
This confluence of factors has contributed to a surge in spot gold prices and may continue to support gold prices in the near-term.
The increased interest in gold’s safe haven appeal bodes well for extraction companies such as Royal Gold Inc. (NASDAQ: RGLD) because they are likely to increase their margins.
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