Gold and Oil Prices Surge Amidst Middle East Conflict
Gold prices continued their rise, which began with the outbreak of war between Israel and Hamas on October 7. The spot price of the precious metal has gained over $162 in the last two weeks, reaching the level of $1,978 per ounce during today’s trading moments.
Oil has also seen a deterioration since the start of the conflict, with West Texas Intermediate crude rising from $81 a barrel on the day of the Hamas attacks to over $89 today, and the price of Brent crude rising from $83 to $93 on the last day. trade.
Under these conditions, gold prices are projected to rise regardless of bond rates, as oil would provide an additional lift to the yellow metal.
Escalating Tensions in the Middle East Impact Crude Oil and Precious Metals Markets
Once the war started, we saw a huge rise in crude oil and precious metals, especially crude oil rather than metals. But then the minerals went down, then the hospital was bombed by Israel, and then the planned summit between the American president and a number of Arab leaders was canceled, fanning the flames of war, which caused even more instability. in the region. The problem is not just Gaza, the war could spread to Lebanon and Syria, not to mention the possibility of Iran also entering the fray.
These events would push up gold prices, and when local challenges and risks are taken into account, the evolution of bond yields doesn’t really matter.
Massive support for gold
It’s also possible that gold is getting a lot of support at the moment, as we’ve seen previous highs near or slightly above $2,000, with no further upside, but this time support is coming from geopolitical tensions and expectations that US interest rates will peak.
Meanwhile, last week’s latest CPI and Producer Price Index reports, along with Wednesday’s retail sales figures, show that inflation is back on the rise. Gas and energy prices have risen, credit cards have peaked and consumer savings are being widely used. While the labor market is still doing quite well, there are strikes everywhere led by the UAW, and wages will probably rise too much because of these strikes, so the whole economic environment is pointing towards a pick-up in inflation. and out of control, this could prompt the Federal Reserve to abandon the 2% inflation target, which would support a rise in gold prices.
Given these factors, it’s an ideal environment for precious metals or safe havens. Last week, we saw a rise to 1946, but prices fell by $25 and then reached new highs. So, against this backdrop, the trend this time is broadly bullish, and we expect the rise to continue to the $2,100 an ounce level as tensions in the Middle East continue.
However, the current relationship between oil and gold will also help to support the precious metal. As oil prices rise, so would inflation, so people will turn to gold as a hedge against the price rises that could herald the Fed’s failure to meet the 2% inflation target. At this stage, oil could easily explode to $120, or even $130, if Iran enters the fray or Israel decides to attack, and when gold keeps climbing, supported by war expansion and rising oil prices.
