Why did gold prices go up after Hamas's attack on Israel, while stocks dipped?

Following the surprise attack by Hamas on Israel and Israel's subsequent offensive this weekend, the precious metals market in India displayed mixed trends today (October 10). As the conflict in West Asia escalates, it has had ripple effects beyond the financial markets.

Gold on India's Multi Commodity Exchange (MCX) showed a slight increase, with maturing on December 5, 2023, standing at Rs 57,744 per 10 grams, representing a marginal hike of Rs 98 or 0.17 percent from the previous close.

On the other hand, the stock market has seen wider price swings on Monday (October 9), as investors looking to invest might have diverted their money into more stable avenues. The prices related to Israeli companies specifically saw a steep hit as the market opened on Monday.

However, the prices picked up on Tuesday (October 10).

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A look at the international market

• In the international market, gold prices reached a more than one-week high, driven by substantial gains resulting from increased market uncertainty stemming from the conflict in West Asia.
• According to a recent report, gold rose by 0.2 percent to $1,864.39 per ounce, the highest level since September 29. US gold futures also increased by 0.8 percent to $1,878.20.

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Impact of geopolitical tensions

• The recent surge in gold prices is, according to experts, linked to the conflict between Israel and the Gazan Islamist group, Hamas.
• This military confrontation has also raised concerns about potential disruptions in oil supply from West Asia, particularly through the Suez Canal and the Persian Gulf via the Strait of Hormuz, thus increasing demand for safe-haven assets like gold.
• Traditionally, gold has been a safe investment during times of economic uncertainty. However, its appeal can diminish when interest rates rise for an extended period due to the reduced yield it offers.

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There's more

• Comments from top Federal Reserve officials in the USA could also have played a role in gold's recent rally.

• Fed Vice Chair and Dallas Fed President suggested that, as long-term interest rates are on the rise, the Fed might be less likely to increase short-term interest rates. Consequently, investors are considering gold as a short-term investment option in the wake of the war.

Some experts also believe that the ongoing conflict in West Asia could continue to bolster gold prices in the near future.

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