On concerns of a Middle East war, gold has been showing volatility from the middle week of October 2023, as per the market trends.
On October 16, gold neared a one-month high as the Israel-Hamas war drove up safe-haven demand, while copper prices also rose tracking a positive reading on China’s economy.
The bombing of a Gaza hospital on the late night of October 17, which reportedly killed hundreds of Palestinians, has now marked a potential ‘Escalation Moment’ in the crisis, with Egypt and Palestine calling off a summit with United States President Joe Biden following the incident.
There are also concerns about the conflict now ‘forcing’ other Arab countries to get involved in it, thereby resulting in the war spilling over into the broader Middle East region. Due to this, investor demand for safe havens has hit an upward trajectory as of now, with gold seeing strong inflows. Spot gold rose 0.8% to $1,937.80 an ounce, while gold futures expiring in December 2023 jumped 0.8% to USD 1,950.65 an ounce.
Both instruments were close to a one-month high.
In fact, as the conflict broke out, gold demand started surging, as the yellow metal was seen sitting on a 5% gain by the middle week of October 2023.
However, this demand cooled off in recent sessions, especially amid concerns over the United States interest rates. Latest retail sales data from the world’s largest economy also pushed up fears of the Federal Reserve taking up a more hawkish stance.
According to the wealth management firm Julius Baer, the demand for safe-haven assets may decline given the strong global economic trends.
“While we cannot completely rule out a conflict escalation, we have a strong belief in the current state of the economy, which includes no US recession, higher-than-average interest rates for an extended period, and no systemic banking crisis. We don’t see the need to adjust our opinions on gold and silver because of these trends, which should cause safe-haven demand to continue to decline,” economist Carsten Menke wrote in a note on October 16, 2023.
Gold, which is regarded as a secure investment in turbulent times, rose 3.2% to USD 1,928.15 per ounce on October 13, marking the greatest one-day gain in seven months. Speculators expanded their net short holdings in the week ending October 10, according to Reuters. This month, they became net short on COMEX gold for the first time since November 2022.
Short-term speculative speculators in the gold and silver markets are reportedly having a difficult time right now, according to Julius Baer.
“Betting on higher prices, they were caught on the wrong foot as the long-awaited US recession did not materialize and the US Federal Reserve stated that interest rates would remain higher for longer,” the wealth management firm stated further.
Menke claimed that the potential for an expansion of the conflict toward Iran and/or Lebanon makes it extremely likely that demand for safe havens will increase. The battle appears to have started along the predetermined conflict lines, even though it is nearly impossible to judge because there are so few early indicators. Conflicts between Israel and Hamas haven’t affected the gold and silver markets for very long in the past, and this is consistent with the general geopolitical pattern.