Gold hits $2 000 as Israel-Hamas clash raises safe-haven allure

28th October 2023 By: Bloomberg

Gold hits $2 000 as Israel-Hamas clash raises safe-haven allure

Gold rose to $2 000 an ounce for the first time since May as concerns over conflict in the Middle East outweigh the impact of high bond yields.

Israeli forces are expanding their activity in the Gaza Strip, a defense spokesman said, as Gaza lost Internet and phone service and Israel stepped up airstrikes in the area.

The precious metal has jumped about 9% since Hamas attacked Israel on October 7, bouncing back from a seven-month low as demand for haven assets increased. The initial surge was intensified as many investors betting on a further slide were caught off guard by the outbreak of war, forcing them to quickly cover their shorts.

Gold’s recent bounce leaves the metal increasingly disconnected from one of its traditional trading dynamics: with inflation-adjusted Treasury yields at the highest in over a decade, non-interest-bearing bullion should typically come under massive selling pressure. Yet the relationship has appeared to unravel over the past year, as a combination of central-bank demand and haven buying kept prices elevated — and reasonably range-bound — for months, even as real interest rates spiked.

That trend had finally shown signs of turning around in the weeks preceding the Hamas attack on Israel, when indications from Fed policymakers that they would keep policy tight for a long period helped trigger a sharp sell off in bullion prices.

The threat of the conflict spilling over into the wider region that’s crucial to the global energy supply has rattled markets. A spike in oil prices could generate inflation that’s difficult for central banks to curb without hurting their economies, potentially boosting gold.