Gold Shines as Middle East Tension Surges

Markets fell and gold jumped during recent Middle East hostilities – Strategist says “instinctive safe-haven buying” drove the price of gold.

Bullion.Directory precious metals analysis 04 October, 2024
By Isaac Nuriani
CEO at Augusta Precious Metals

From March 2022 through July 2023, the Federal Reserve raised the benchmark federal funds rate 11 separate time for a total of 525 basis points. Until the central bank decided to cut rates by a half point two weeks ago, interest rates spent most of the last year at 23-year highs.[1] 

In spite of that draconian rate environment, gold appreciated more than 40% from the outset of 2022 through September 18, the day of the Fed’s decision to lower interest rates.[2] 

As for why gold has been able to pull off such an impressive feat, analysts attribute it to the desire among a large swath of investors worldwide to hedge their portfolios against significant quantities of uncertainty; economic, fiscal, and geopolitical uncertainty.[3] 

In fact, geopolitical uncertainty has turned out to be an especially strong driver of gold prices during the metal’s current bull run. 

One of the principal sources of heightened geopolitical risk over this period is, of course, the ongoing conflict between Russia and Ukraine. Since February 2022, the world has been exposed to the risks associated with the continued prosecution by both nations of Europe’s largest ground war since World War II.[4] 

But as significant as that engagement has been as a threat to global security, there’s been a good deal more on the world’s collective geopolitical radar screen.  

Among the most prominent concerns, presently, are the ongoing tensions between the U.S. and China. These are tensions that have assumed a variety of forms, including technological competition, economic trade, and, most ominously, military rivalry, particularly over the sovereignty of Taiwan and control of the South China Sea.[5] 

And something else that’s proved worrisome for all concerned: the highly unsettling tensions in the Middle East prevailing right now. 

To be sure, the Middle East is a perpetual source of geopolitical concern. But those concerns have risen to another level since October 7, 2023, the date the Palestinian Sunni Islamist group Hamas launched a brutal surprise attack on Israel. More than 1,200 Israelis and other foreign nationals were killed that day by Hamas, and, since that time, tens of thousands of Palestinians in Gaza reportedly have been killed.[6] 

But for those uncertain in just what way – including just how directly – elevated geopolitical risk can impact perceived safe-haven assets such as precious metals, the world was treated to a textbook example of that impact this very week. In what proved to be the latest round of tension between Israel and its “standard” array of adversaries in the midst of the ongoing war with Hamas, hundreds of Iranian missiles fired at the Jewish state triggered a very clear and very illustrative reaction in gold. 

This week, we’re going to connect the dots between the attack, the reaction by financial markets, and the reaction by gold. Beyond that, we will examine, more generally, the near- to intermediate-term outlook of experts to see if investors should account for geopolitical risk in their portfolio planning…and if it might be at all reasonable for those investors to consider acquiring precious metals as one way to potentially help mitigate its impacts. 

“Instinctive Safe-Haven Buying” Drove Gold this Week, Says Trader

This past Tuesday, the risks of an all-out war in the Middle East seemed to increase dramatically when Iran fired roughly 200 missiles into Israel as a proclaimed act of revenge for Israel’s killing of numerous Hezbollah leaders, including the man in charge, Hassan Nasrallah.[7]

The resulting damage appeared to be minimal, overall. Nevertheless, the attack was a worrisome further escalation of tensions that already had been mounting between Hezbollah – an ally of Hamas and Iran – and Israel in recent weeks.[8]   

Nearly two weeks ago, airstrikes killed more than 500 people in Lebanon as Israel sought to engage targets linked to Hezbollah.[9] In the subsequent days, the airstrikes by the IDF (Israel Defense Forces) have killed more than 1,400 people and displaced nearly 1 million.[10] 

According to Cybele Mayes-Osterman of USA Today: 

“An all-out war between Hezbollah and Israel could have devastating consequences. Hezbollah has more military force than Hamas, and it is backed by Iran, whose direct involvement would lead to a much larger and more destructive regional conflict.”[11] 

As for the consequences to economies and financial markets, those can be very real, immediate, and direct. And we saw that on Tuesday, the day Iran fired the estimated 200 missiles into Israel. 

All major indexes dropped that day. The tech-heavy Nasdaq Composite dropped most of all, tumbling 1.5%.[12] 

And gold? Gold surged. Its perceived safe-haven property triggered by the missile attack, gold rose as much as 1.5%, ending the day up about 1% on Tuesday.[13] 

That gold climbed as it did once again underscored the degree to which it is viewed around the world as a store of value.  

 “It’s instinctive safe-haven buying,” said Tai Wong, a New York-based independent metals trader, about the reason why gold jumped as it did that day.[14] 

Instinctive. 

That instinct to buy gold and other precious metals during periods of acute geopolitical crises has been evident time and again.  

October 7, 2023 – the date of last year’s attack on Israel by Hamas – fell on a Saturday, but from Friday, October 6 to the following Monday, gold rose nearly 2% and silver was up more than 4%.[15]  

“No one wanted to be out of the gold market going into the weekend. It was a classic safe-haven event,” wrote Brien Lundin, editor of Gold Newsletter. Lundin added that the events were “bad news for the world and, in a typical bittersweet fashion, good news for gold bulls.”[16] 

And from October 6, 2023 through the end of that month, both gold and silver were up roughly 9%.[17] 

“Safe-haven flows driven by geopolitical tensions…were likely behind the move,” noted the World Gold Council.[18] 

Russia’s Invasion of Ukraine Initially Sent Both Gold and Silver Significantly Higher 

Go back another year and a half or so, to the outset of Russia’s invasion of Ukraine, and you see the resulting spike in geopolitical tension stemming from that development energizing gold and silver then, as well. 

From the beginning of February 2022, when it seemed clear that the invasion was imminent, through February 24, the first day of hostilities, to the end of the first week of March 2023, gold jumped about 13% – even briefly crossing above $2,000 per ounce.[19] No slouch itself, silver surged roughly 14% on the upheaval.[20]   

It should be clarified at this point that the initial spikes in precious metals prices that so often are triggered by acute geopolitical stressors – such as the outbreak of overt military hostilities – often will subside in the days and weeks that follow if it appears that the more substantial risks and fears associated with the initial events do not materialize.[21] But that raises an important point. 

Should the conflicts between or among adversaries persist, and should they persist in an environment of generally greater geopolitical uncertainty, where other conflicts and stressors are in play, then the more singular event-driven spikes in metals prices, taken together, have the potential to effectively morph into broader price uptrends. On that note, the World Gold Council earlier this year cited both the Russia-Ukraine war and the Israel-Hamas conflict as among the most significant sources of gold price support in 2023, and added that those two conflicts should remain prime sources of gold support this year, as well.[22] 

The events of earlier this week are testimony to at least the partial accuracy of that projection, it would seem. 

So, yet again, investors have seen with their own eyes and in real time the beneficial impact that acute geopolitical trouble can have on real assets possessed of perceived safe-haven and store-of-value properties; assets such as precious metals. 

This week also is another reminder that geopolitical risk remains particularly prominent right now – which raises the possibility it could serve as an ongoing source of support for metals prices through at least the foreseeable future. 

Let’s talk about that next. 

Strategists: Geopolitical Risk Could “Remain Elevated for the Next Several Years”

Understandably, much has been made by metals strategists of the Federal Reserve pivot back to accommodative monetary policy by way of the central bank’s rather dramatic decision last month to slash interest rates by 50 basis points. Numerous analysts see gold climbing as high as $3,000 per ounce next year largely on the strength of a renewed cycle of interest rate cuts.[23]

“Largely”.…but not entirely. 

Another expected source of gold price support is continued geopolitical uncertainty. Analysts at Goldman Sachs recently said they’re looking for gold to continue to rise through at least 2025, naming gold as their “preferred near-term long” and citing the metal as their “preferred hedge against geopolitical and financial risks.”[24]   

And according to other strategists, gold will have plenty of opportunity to shine in the coming years against a backdrop of geopolitical upset, given the extent to which those strategists think that distress will characterize the worldwide economic landscape. 

For example, in a report earlier this year, analysts at Amundi, one of the world’s largest asset managers, said: 

“We expect geopolitical risk will remain elevated for the next several years as a result of the growing number of actors involved, the tectonic geopolitical and technological shifts underway, and deteriorating bilateral relations.”[25] 

“When we zoom into the 2020s,” they added, “the impression that emerges is that the number of crises with global impact, and the pace at which they occur, are accelerating: the Covid pandemic lead to the break-down of global trade ties; Russia’s invasion of Ukraine caused major ruptures between traditional allies; the Middle East crisis is threatening to draw Iran, Israel and the United States into a bigger war.”[26] 

Amundi’s analysts won’t get any argument from those at BlackRock, the world’s single-largest asset manager, who recently characterized as “high” the probability that each of the following risks could be realized: 

• Tensions between the U.S. and China “escalate meaningfully over Taiwan or in the South China Sea.” 
• “The war in Ukraine becomes protracted, raising the risk of escalation beyond Ukraine.” 
• “Regional conflict [in the Middle East] escalates, threatening energy infrastructure and increasing volatility.” 
• “A terror attack leads to significant loss of life and commercial disruption.”[27] 

Not the cheeriest of outlooks, to be sure. If there is any kind of a silver lining to be had, perhaps it’s that investors who wish to make their portfolios more resilient in this anticipated geopolitical environment effectively have the same access to precious metals as central banks, hedge funds, and other large investors looking to gold to help hedge their own holdings. 

Retail investors even have the option today – thanks to a change made to the tax code in 1997 – to purchase high-quality gold and silver bullion on a tax–advantaged basis through a gold IRA (please be sure to discuss the tax implications of IRAs with a qualified professional).[28] 

As for whether those retail investors view their own portfolios as carrying the same level of geopolitical risk borne by the holdings of central banks and asset managers, that’s a decision each will have to make for themselves. But it’s worth noting that when unfavorable geopolitical events are realized, they do not discriminate in favor of more modest portfolios.

As we saw earlier this week, the potential impact those events can have in compromising risk assets – as well as supporting perceived safe-haven assets – is universal.

And for investors both large and small who depend so heavily on the continued viability of their respective portfolios, having the willingness to prudently consider the implications of those potential impacts could be enormously helpful.

[1] FederalReserve.gov, “Open Market Operations” (accessed 10/3/24).
[2] CNBC.com, “Gold COMEX (Dec′24)” (accessed 10/3/24).
[3] Greg Bartalos, Barron’s, “Gold Is at a Record High. Why It Is Set to Rise Even More.” (April 3, 2024, accessed 10/3/24).
[4] Andrew Osborn, ThePrint, “Russia’s invasion of Ukraine plunged Europe into ‘biggest land war’ since WWII, says report” (
[5] BlackRock, “Geopolitical risk dashboard” (accessed 10/3/24).
[6] Congressional Research Service, “Israel and Hamas Conflict In Brief: Overview, U.S. Policy, and Options for Congress” (August 1, 2024, accessed 10/3/24).
[7] Tom Vanden Brook et al., USA Today, “Iran fires 200 missiles at Israel in major attack” (October 2, 2024, accessed 10/3/24); Stephen Kalin, Wall Street Journal, “Nasrallah’s Killing Leaves Hezbollah Diminished—With a Void at the Top” (September 29, 2024, accessed 10/3/24).
[8] Vanden Brook et al., “Iran fires 200 missiles.”
[9] Cybele Mayes-Osterman, USA Today, “Middle East tensions flare: What to know about escalating Israel-Hezbollah fighting” (September 25, 2024, accessed 10/3/24).
[10] Cate Brown, Washington Post, “Israeli strikes in Lebanon have been most intense and deadly in decades” (October 2, 2024, accessed 10/3/24).
[11] Mayes-Osterman, “Middle East tensions flare.”
[12] Alex Harring, CNBC.com, “S&P 500 falls, Nasdaq drops 1% to start October as Middle East tensions intensify: Live updates” (October 1, 2024, accessed 10/3/24).
[13] CNBC.com, “Gold COMEX (Dec′24).”
[14] CNBC.com, “Gold jumps over 1% on safe haven demand after Iran’s attack on Israel” (October 1, 2024, accessed 10/3/24).
[15] London Bullion Market Association, “LBMA Precious Metal Prices” (accessed 10/3/24).
[16] Myra Saefong, MarketWatch, “What Israel-Hamas war means for gold as investors seek safety” (October 16, 2023, accessed 10/3/24).
[17] London Bullion Market Association, “LBMA Precious Metal Prices.”
[18] World Gold Council, “Gold Market Commentary: Gold finishes October on a high” (November 7, 2023, accessed 10/3/24).
[19] Wilson Center, “Two Years of War in Ukraine: Timeline to Invasion” (January 1, 2024, accessed 10/3/24).
[20] London Bullion Market Association, “LBMA Precious Metal Prices.”
[21] Sybilla Gross, Yahoo Finance, “Gold Retreats as Haven Buying Eases Following Iran Strikes” (October 2, 2024, accessed 10/3/24).
[22] Charmaine Jacob, CNBC.com, “Gold demand hit record highs in 2023 amid geopolitical risks, China weakness” (February 2, 2024, accessed 10/3/24).
[23] Business Insider, “Gold Prices Set To Climb To $3,000 On Fed Rate Cuts, Geopolitical Tensions, Bank of America Says” (June 24, 2024, accessed 10/3/24).
[24] Goldman Sachs, “Gold prices forecast to climb to record high” (September 12, 2024, accessed 10/3/24).
[25] Anna Rosenberg, Lauren Stagnol and Takaya Sekine, Amundi, “Geopolitical risk will grow: here is how we track it” (May 2, 2024, accessed 10/3/24).
[26] Ibid.
[27] Sovereign Wealth Fund Institute, “Top 100 Asset Manager Managers by Managed AUM” (accessed 10/3/24); Rosenberg, Stagnol and Sekine, “Geopolitical risk will grow.”
[28] Tax Notes, “JCT Summarizes Revenue Provisions in ‘Taxpayer Relief Act’” (August 1, 1997, accessed 10/3/24).

This article was originally published here

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