Israel-Hamas conflict ignites gold prices

Concerns that the Israel-Palestine conflict could spread to a wider area have increased demand for gold, a safe-haven asset. Hamas's military wing, the Izz ad-Din al-Qassam Brigades, announced last Saturday that it had launched a comprehensive attack on Israel called "Operation Al-Aqsa Flood." While thousands of rockets were fired from Gaza toward Israel, armed groups entered residential areas in the region.

Concerns that the Israel-Palestine conflict could spread to a wider area have increased demand for gold, a safe-haven asset. Hamas's military wing, the Izz ad-Din al-Qassam Brigades, announced last Saturday that it had launched a comprehensive attack on Israel called "Operation Al-Aqsa Flood." While thousands of rockets were fired from Gaza toward Israel, armed groups entered residential areas in the region.

ISRAEL'S POSSIBILITY OF LAUNCHING A GROUND ATTACK ON GAZA DRIVES UP OIL PRICES

As the Israeli army launched attacks on the Gaza Strip with dozens of fighter jets, the geopolitical risks that increased over the weekend led to higher volatility, particularly in commodity prices. As investors reassess geopolitical risks in the markets, demand for safe-haven assets appears to be strengthening. Meanwhile, following reports that international airports in Damascus and Aleppo were simultaneously rendered inoperable during Israel's attack on Syria, the price of an ounce of gold finished the week up 5.47 percent at $1,932.86.

Reaching its highest weekly gain in 7 months with the 5.47 percent increase, the price of an ounce of gold had previously seen a 6.5 percent weekly gain during the week of March 13-17, 2023. Analysts pointed out that the price of an ounce of gold exceeded $1,900 for the first time since September 27.

"DOVISH" REMARKS FROM FED MEMBERS

While expectations that the US Federal Reserve (Fed) and the European Central Bank (ECB) will keep policy rates unchanged in the remaining meetings of the year have strongly emerged in money market pricing, the decline in bond yields, supported by the gradually "dovish" tone in the forward guidance of bank members, has also significantly supported the price of an ounce of gold.

Fed Board of Governors member Christopher Waller stated that the tightening in financial markets might allow the Fed to "watch and see" what happens before taking further steps regarding interest rates, while Atlanta Fed President Raphael Bostic stated that there is no need for the Fed to continue raising interest rates unless the decline in inflation stops, adding, "I don't think we need to do anything more on interest rates today."

LIKE A SAFE HAVEN IN TIMES OF UNCERTAINTY

Analysts stated that there is a 94 percent probability that the Fed will keep the policy rate steady in the 5.25-5.50 percent range, noting that the US 10-year bond yield fell by approximately 17 basis points to 4.6240 percent. Expressing that gold's safe-haven feature usually comes to the fore in times of uncertainty, especially during wars, analysts said that gold demand could increase if tensions in the region escalate. Silver, another safe-haven asset, also finished the week with a 5.2 percent rise.

İş Investment International Capital Markets Manager Şant Manukyan stated that gold's movement is naturally linked to the tension in the Middle East, but that this rise is an momentum created by the decline in interest rates. Emphasizing that the US 10-year bond yield had risen to 4.88 before the employment data released in the US last week and then fell to the 4.60 levels, Manukyan noted that previously, the rise in alternative and real returns was a negative development for gold, but now, on the contrary, the fall in returns is positively affecting gold.

DECLINE IN BOND YIELDS IS POSITIVE FOR GOLD

Manukyan predicted that the war would not have much of an impact on gold unless it turns into a war between Israel and another state. Noting that gold could rise if the involvement of another state in the war is discussed or if situations such as an operation against Iran arise, Manukyan said, "These are geopolitical issues and they are exactly the kind of unpleasant topics that no one knows for sure. We can say this: There is an increase in the level of tension that we can call permanent in the Middle East, following the Ukraine war. Likewise, question marks regarding Taiwan continue on the Chinese side. If we add some dynamics such as the anti-US or anti-Western bloc increasing the share of gold in their reserves, the geopolitical tension premium will be permanent. Even if we do not feel the hot war, there are some permanent dynamics that will cause gold prices to accelerate upwards in the medium and long term. But we can say this: the decline in bond yields is positive for gold."

Kelvin Wong, a Senior Market Analyst at Oanda, which provides data services in New York, also stated that the rise in the price of an ounce of gold is linked to the fact that the geopolitical risk premium stemming from the Middle East still persists. Ole Hansen, Head of Commodity Strategy at Saxo Capital, expressed that predictions that the Fed may have reached its peak in interest rates and concerns stemming from the Middle East are supportive for the price of an ounce of gold.

News Source: 12punto