By Gold futures experienced a significant rally on Wednesday, reaching their highest levels since late August. The surge in prices was primarily driven by an explosion at a Gaza City hospital, which prompted investors to flee from risky assets and seek refuge in the safe haven of gold.
Outperforming the S&P 500
Gold’s rise in prices on Wednesday allowed it to outperform the S&P 500 Index over the past year. The most-active December gold contract on Comex rose by 1.8% ($34) to $1,969.80 per ounce, reaching a high of $1,975.80. This surge in prices is poised to settle at the highest level since August 30, according to FactSet data.
Gold’s Stellar Performance
Over the last 12 months, gold futures have seen an impressive return of 18.95%, as reported by Dow Jones Market Data. In comparison, the price return for the S&P 500 stands at 17.11%, with a total return of 18.93%.
“The yellow metal is a solid hedge against risky assets that get smashed by a severe fall in appetite,” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank, emphasizing gold’s reliability as a safe investment option.
Middle East Unrest Sparks Risk Aversion
The recent tragic events in Gaza City, where a hospital was struck by a massive blast, have contributed to an upsurge in risk aversion amongst investors. The blame game between Hamas and the Israeli military has intensified fears and heightened market uncertainty.
U.S. stock markets reacted to these developments, with the Dow Jones Industrial Average falling by over 100 points (0.3%) and the S&P 500 and Nasdaq Composite also posting losses.
Gold’s Support Amidst Uncertainty
Gold has found support amidst the unrest in the Middle East due to its status as a safe haven. However, the strength of the U.S. dollar and rising bond yields have increased the opportunity cost of holding gold, posing a potential threat to its current rally.
“In spite of the current support, gold’s decline may be imminent,” warned Fawad Razaqzada, market analyst at City Index and FOREX.com. “If a ceasefire between Israel and Hamas is established, it could trigger a downturn in gold prices.”
As investors navigate these uncertain times, the performance of gold will continue to be closely monitored, with its role as a reliable asset in times of turmoil solidified once again.
Gold Remains Resilient Amidst Geopolitical Uncertainty
According to market analyst Michael Ingram, gold has experienced a significant rally, indicating that investors are pricing in a potential escalation in the regional crisis. However, Ingram notes that if the situation does not worsen, there is a risk of a sharp decline in gold prices.
Despite headwinds from the U.S. interest rate outlook, gold has continued to climb. This is attributed to the resilience of the U.S. economy, as evidenced by higher-than-expected retail sales, manufacturing and industrial production, and capacity utilization figures for September.
The market is eagerly awaiting further clarity on the interest rate outlook, which will be provided in a speech by Federal Reserve Chairman Jerome Powell on Thursday. However, the impact of a stronger U.S. dollar on gold prices has been marginal, as this trade is already considered overcrowded in the foreign exchange markets.
Investment flows in gold have been somewhat mixed recently. While central banks continue to show unabated demand, private portfolio investment through ETFs and similar vehicles has seen net outflows in Europe and the U.S., with only Asia bucking the trend. It is important to note that ETF flows can be quite volatile.
Despite these fluctuations, gold remains a safe haven asset amidst the growing uncertainty in geopolitics. The pressure on traditional alternatives such as fixed income and real estate markets has further solidified gold’s strategic position within investment portfolios.
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