Gold prices increased due to rising demand for safe-haven assets following heightened tensions resulting from the Hamas attack on Israel. The precious metal surged by as much as 1.2% on Monday as financial markets braced for potential headwinds and increased volatility due to the Gaza militants’ attack. Additionally, oil prices rose as the conflict raised concerns about escalating tensions in the Middle East, a region responsible for nearly one-third of global oil supply. The yen and the US dollar, both considered safe-haven currencies, also strengthened in response.
While the crisis in Israel has added a slight premium to gold, analysts suggest that more significant gains will depend on a larger escalation across the region. Market research firm Fat Prophets’ analyst David Lennox noted this.
Gold had already started to rally on Friday after approaching its lowest level since March, partly influenced by signals from the Federal Reserve indicating a commitment to maintaining tight monetary policy. Hedge fund managers trading Comex futures recently switched to a net short position for the first time in 11 months, and investors in exchange-traded funds continued to sell gold.
Despite the surge in gold prices, the robust US employment data for September, which supports the case for further interest-rate increases, could pose a challenge. Fed Governor Michelle Bowman emphasized the persistence of high US inflation and the potential need for additional monetary tightening. Generally, higher interest rates have a negative impact on gold.
The ongoing geopolitical crisis in Israel has triggered a surge in safe-haven demand for gold, according to Priyanka Sachdeva, senior market analyst at Phillip Nova Pte. However, the upward trajectory of US Treasury yields and the US dollar, driven by the resilience of the US economy, is likely to limit the upside potential of non-yielding, dollar-denominated gold.
At 10:34 am in London, spot gold prices rose by 1% to $1,851.96 per ounce after a 0.7% gain on Friday. The Bloomberg Dollar Spot Index increased by 0.2%. Silver and platinum prices also rose, while palladium experienced a slight decline.
