Gold prices have risen nearly 5% in the last week and are approaching its all-time high of $2,074.88 per ounce as investors flock to the safe-haven asset with the conflict between Israel and Hamas escalating.
The price of gold reached its all-time high in August 2020 during the peak of the Covid-19 pandemic, which was another event that rattled markets and sent investors running for safe havens. This is typical of gold, which tends to perform best during market shocks and periods of uncertainty. Investors often prefer the relative safety and calm of the precious metal over the volatility of stocks when times are tough.
Since the conflict between Israel and Hamas erupted, the price of gold has posted its best weekly performance in seven months.
Evolving Conflict in the Middle East
The latest rise in gold prices comes as Israel announced that its military has carried out raids inside the Gaza Strip, shifting the conflict with Hamas from an air war to a ground offensive. The evolution of the conflict in the Middle East has helped to unnerve markets, with equities slumping in volatile trading while the price of gold moves higher.
Gold is seen as a more stable and consistent investment than equities during periods of market uncertainty. Gold isn’t the only precious metal that is marching higher right now. The price of silver has gained 4% to reach nearly $23 an ounce in recent trading sessions on its way to its first weekly gain in three. And the price of platinum has increased 1.4% to $880.42 over the last week.
Gold Prices and Interest Rate Expectations
While the price of gold has performed well this year and gained 16% over the last 12 months, it has really started to climb since war broke out in the Middle East. Domestically, gold’s price has also been given a boost by expectations that the U.S. Federal Reserve will hold off on raising interest rates at its next meeting on Nov. 1. Futures traders are placing the odds that the Fed holds rates steady in November at greater than 85%.
U.S. Treasury yields, which tend to be inversely correlated with gold, have been subdued lately as well, and that has helped the price of the precious metal too. The $2,000 price level is seen as a psychological barrier for gold. While the price has flirted with that level several times in the last three years, it has yet to breach it and hit a new all-time high. Some analysts say that could now change given the current mix of geopolitical unrest, positive economic indicators, and tame bond yields, which are combining to create bullish sentiment around gold.
What’s Next
Whether gold prices break above $2,000 an ounce and reach new all-time highs remains to be seen. However, it is clear that investors are turning to the safe haven asset as the war between Israel and Hamas enters a new phase and economic conditions become more favorable.
Investors should keep an eye on gold for signs of it testing new peaks. Should the price hold above $2,000 an ounce, it will likely mark a new phase in trading of the precious metal.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
