Gold Gains as Attack on Israel Bolsters Metal’s Haven Status

Gold rose the most since May on increased haven demand after tensions ramped up in the wake of the Hamas attack on Israel.

(Bloomberg) — Gold rose the most since May on increased haven demand after tensions ramped up in the wake of the Hamas attack on Israel. 

The precious metal gained as much as 1.7% on Monday as financial markets braced for headwinds and volatility from the shock attack by Gaza militants. Oil surged as the conflict threatened to inflame tensions in the Middle East, home to almost a third of global supply. The dollar also strengthened. Comex gold implied volatility and call skew also picked up as December futures rose the most since August.

Bullion was caught in a period of low volatility for much of this year despite surging bond yields, which would usually put the precious metal under major pressure. It had tumbled sharply in recent weeks amid growing expectations that the US Federal Reserve will keep interest rates higher for a longer period of time to tame inflation.

The attack on Israel from the Gaza-based militant group has killed more than 900 Israelis, mostly civilians. Israeli Prime Minister Benjamin Netanyahu said retaliation has “only started,” and “what we will do to the enemy will echo down through generations.”

“Gold prices are rising as a new geopolitical risk has investors scrambling for safe-havens on a day the US bond market is closed,” said Ed Moya, senior market analyst at Oanda. “The Israel-Hamas war stunned markets and the risks are elevated that this could spread further across the Middle East.”  Moya sees near-term technical support for bullion at the $1,920 level.

The tensions in the Middle East may mean that the Federal Reserve will not “continue to hike rates into increased uncertainty, and the prospect for peak rates have suddenly move closer despite the potential inflationary impact of higher oil prices,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “We conclude that this development could signal a low in the gold price and as the attention turns to rate cuts instead of hikes it may receive additional demand from investors.”

Spot gold rose 1.6% to $1,862.80 an ounce as of 4:08 p.m. in New York.


–With assistance from Martin Ritchie, Jason Scott, Swansy Afonso and David Marino.

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