Since the onset of recent hostilities between Israel and Hamas on October 6, the price of gold has been on a steady incline, reaching a new record level. Within the past two weeks, it has risen by 8.5%, reaching a record high today at $1,985 per ounce.
Since the onset of the conflict, the price of oil has increased from $81 a barrel on the day of the Hamas attack to over $89 today. Meanwhile, for example, Brent crude rose experienced a surge from $83 to $93 during the same timeframe.
Many analysts believe that gold prices will keep rising under these circumstances, unaffected by bond yields, with oil further enhancing the value of the precious metal.
Jānis Astičs, head of Tavex Latvia’s dealing department, underlines that
The geopolitical situation is driving up the price of gold significantly, and when you consider the domestic challenges and risks of countries, it doesn’t really matter what bond yields are doing right now.
The situation is further complicated by the US’s financial backing for both Ukraine and Israel, even with its debt reaching 122% of its GDP. Recently, US Treasury Secretary Janet Yellen affirmed that the US remains steadfast in its commitment to support nations engaged in conflict.
It’s crucial to recognise that for every new conflict the US supports, there’s a rise in the already significant budget deficit, further weakening the dollar. This deficit can’t be mended without expanding the debt, which involves printing more dollars.
As we’ve learned from the Covid crisis, unchecked money printing triggers inflation, which doesn’t get controlled as initially anticipated by authorities. Consequently, engaging in new conflicts, backed by the US dollar, will likely result in more money being printed, rising inflation, and increasing internal strife within the US.
Key Gold Price Triggers
Sean Lusk, the Director of Commercial Hedging at Walsh Trading, told Kitco in an interview that despite gold’s current popularity, forecasts suggest its prices will continue to rise into the next year.
Lusk further mentioned that in today’s scenario, seasonal factors, such as wedding seasons or Valentine’s Day, have minimal impact on gold prices. Instead, the major driving forces are broader economic trends and significant geopolitical occurrences.
S&P500 and Dow Index Prospects
Lusk pointed to recent CPI, PPI, and retail sales figures as signals of a resurgence in inflation. He remarked, “Given the current global events and uncertainties, prominent indices like the S&P500 and Dow are poised for potential declines.”
He added, “Considering these dynamics, if this isn’t the ideal environment for precious metals and safe havens, I’m uncertain what is.”
Nevertheless, gold typically remains a resilient option, especially during short-term spikes in oil prices, serving as a dependable refuge.
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