Israel-Palestine War: Will the Gold Prices Revisit Russia-Ukraine War Highs?

SEATTLE (Scrap Monster): Gold prices shot up in a pavlovian response to the war crisis between Israel and Palestine. The yellow metal gained its sheen as investors rushed to put their money in safe-havens like gold along with bonds and US dollars.  Gold jumped close to two per cent in today's session.

Israel launched airstrikes on Gaza on Saturday morning and declared war on the Palestinian territory, in response to an unprecedented attack on Israeli towns by the Hamas militant group in Gaza. Geopolitical tensions sparked a new wave of global risk aversion, assisting the safe-haven gold price to rise.

Gold prices have risen as a knee jerk reaction, amid improved safe haven bids following renewed tensions in the Middle East after Iran backed Hamas attacked Israel, said Ravindra V Rao, CMT and  Head Commodity Research at Kotak Securities. "Gold might be a beneficiary if it turns into a regional war with involvement of other nations, and any disruptions to oil supply," he added.

Russia-Ukraine war started on February 24, 2022 and gold rose Rs 5,179 or more than 10 per cent to test a high of Rs 55,558. If we calculate similar gains from Friday's closing, prices can gain towards Rs 62,558, suggesting a rise of about Rs 5,687 from its close on Friday. However, the yellow metal's overall highs came in at Rs 61,845 on May 4, 2023.

 As a tendency of safe-havens, gold thrives in the uncertainty times and investors hedge their positions in such assets to ride through the volatility. The ongoing conflict has the potential to roil sentiments in the financial markets, prompting investors to seek refuge in the precious metal, said the analysts.

The current geopolitical tensions arising from the Israel and Hamas conflict has rekindled interest in gold as a safe-haven asset, said Sugandha Sachdeva, Executive Director and Chief Strategist at Acme Investment Advisors. The ramifications of this crisis could extend across various economies across the globe, solidifying gold's reputation as a hedge against such risks, she said.

In recent times, gold prices have experienced a significant correction over the past two quarters, driven by the strength of the US dollar and surging US bond yields, reflecting expectations of an extended period of restrictive monetary policy.  As of now, gold prices appear to be an appealing option for value-conscious investors, said Sachdeva.

Market analysts are suggesting to buy gold on dips as they see positive momentum in the yellow metal to continue in the coming months amid the geopolitical worries, macroeconomic factors and upcoming festive season in the country. However, they suggest that investors should trim their expectations as gold is unlikely to redo Russia-Ukraine war performance.

In the domestic markets, a key support level is pegged at Rs 56,100 and as long as this support holds, adopting a strategy of buying on price dips remains a prudent approach for investors, said Sachdeva. "Though, we may not witness the same kind of robust rally that occurred during the Russia-Ukraine conflict, because the Israel and Hamas conflict is less likely to disrupt global supply chains to the same extent, she added.

 Sachin Kothari, Director at Augmont- 'Gold for all' said that the gold experienced a remarkable comeback last week even before the geopolitical crisis in the Middle East. The better-than-expected US Jobs data for September 2023, pushed the gold prices to slump nead the crucial support levels of Rs 56,000, he said.

However, easing inflationary fears forced the US Fed to temper its hawkish position leading to a fall in the US dollar index and resulting in the short-covering in the gold prices. The precious metal snapped its nine-day losing streak.

"Gold prices were trading in an oversold zone last week, and a rebound was due. It is too early to say whether gold will repeat its rally as it did during the Russia-Ukraine war last year. But from current levels of Rs 57500, it seems, this momentum is likely to continue at least towards the next resistance of Rs 58000 and 58500 in the short term," added Kothari.

Courtesy: www.businesstoday.in