The escalating conflict in the Middle East has significantly increased volatility in commodity prices, driving gold to new highs in major currencies yesterday.
After Israel’s invasion of Lebanon over the weekend, markets were shaken yesterday when Iran launched a large-scale missile attack on Israel in retaliation. With the US and other allies supporting Israel’s defense, and Prime Minister Benjamin Netanyahu vowing further retaliation against Iran, the region remains highly unstable.
Stock markets reacted negatively to the news, with the Nasdaq dropping 1.5% in yesterday’s trading and the S&P 500 falling nearly 1%. Conversely, oil prices surged due to growing concerns that the conflict could disrupt oil production and shipping across the Middle East.
Gold prices remain near all-time highs as safe-haven buying continues to drive demand.
After pulling back from last week’s record highs, gold fell to $2,625.74 on Monday but rebounded to $2,673.39 yesterday due to safe-haven buying. This surge represented new records in other currencies. A slightly weaker pound pushed gold to a new UK record of £2,018, while in Euros, gold reached €2,419.52 per ounce, also a record.
Silver also experienced gains in all currencies but has yet to reclaim the $32 per ounce level seen last week. Outside of geopolitical factors, silver is facing weakened industrial demand, particularly from countries like China.
The Federal Reserve has also warned that US interest rates may decrease more slowly than markets currently anticipate, and that last month’s 50 basis point cut does not indicate the pace that will continue in November’s meeting. This has helped the US dollar index recover 0.3% from last week and contributed to the price drop from last week’s highs for gold and silver.
Market volatility is expected to remain high in the coming days as the world watches for responses from Israel and its allies to Iran’s actions.
