Gold price rises due to Middle East conflict

The gold price was at its lowest level in seven months at the start of this month. However, since last week, the price of precious metals has been rising. First and foremost, the gold price is supported by the conflict currently unfolding in the Middle East. In addition, investors are awaiting the speech by Federal Reserve Chairman Jerome Powell, scheduled for later this week.

Conflict Middle East

Gold is seen as a safe investment during times of geopolitical uncertainty. Due to the threat of an Israeli ground offensive in the Gaza Strip, investors are seeking safe investments and are turning to gold. Since the surprise attack by Hamas on Israel, the gold price has climbed by approximately 6 per cent. Other metals, such as silver and platinum, have also increased in price.

The conflict between Israel and Hamas presents a “significant upward risk” for the gold price, according to Nguyen of Commerzbank. If neighbouring countries are drawn into the war, gold will likely regain its role as a safe haven.

Interest rate increases

FXTM Senior Research Analyst Lukman Otunuga commented on the gold price, stating that “the precious metal is likely to remain strongly influenced by the Fed’s interest rate expectations and geopolitical risk. Much attention will be directed towards Jerome Powell. If Powell strikes a hawkish tone, it could fuel bets on Fed rate hikes, which might put pressure on gold prices.”

The prospect of interest rate hikes or higher rates over a prolonged period makes gold a less attractive investment. Gold does not yield interest, so alternative investments may offer higher returns in such scenarios.

For this reason, the gold price has been highly volatile recently. The gold price reacts not only to geopolitical conflicts but also to other factors such as interest rates, inflation, and economic growth. On one hand, the current monetary policy, and on the other, geopolitical uncertainty, contribute to fluctuating gold prices.

Conclusion

At the start of this month, the gold price was at its lowest level in seven months. However, since last week, there has been an upward trend in precious metal prices, driven by the conflict in the Middle East. Investors are also awaiting the upcoming speech by Federal Reserve Chairman Jerome Powell regarding interest rate expectations.

Sources

• Nishant Kumar. Gold price today: Rates jump on Israel-Hamas war escalation fears; what should be your strategy for bullion today? Livemint.com, 2023.
• Gold supported by conflict in the Middle East, focus on Fed Chair Powell’s speech. Marketscreener, 2023.
• Stocks waver as Middle East conflict drives oil and gold higher. Marketscreener, 2023.
• Puck Sie. Investors flee to gold amid Middle East tensions. Financieel Dagblad, 2023.

Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be regarded as such. Past results offer no guarantees for the future.