A significant escalation of the conflict in the Middle East has brought further volatility to commodity prices, pushing gold to new highs in major currencies yesterday.
Following Israel’s invasion of Lebanon over the weekend, markets were rocked yesterday after Iran launched a large-scale missile attack on Israel in response. With the US and other allies aiding in the defence of Israel, and Prime Minister Benjamin Netanyahu promising further retaliation on Iran, the region remains extremely volatile.
Stock markets dropped on the news, with the Nasdaq falling 1.5% in yesterday’s trading and the S & P down almost 1%. Oil prices conversely jumped as fears grow that oil production and shipping will be impacted by the spreading conflict across the Middle East.
Having pulled back from last week’s new all-time highs, gold had dropped to $2,625.74 on Monday, but surged back to $2,673.39 yesterday on safe haven buying. In other currencies this represented new records. A slightly weaker pound meant gold hit a new UK record of £2,018. In Euros gold hit €2,419.52 per ounce, also a record for that currency.
Silver also saw gains in all currencies, but has yet to retake the $32 per ounce level seen last week. Outside of geopolitics, silver is seeing weakened industrial demand, particularly from countries like China.
The Federal Reserve have also cautioned that US rates may come down more slowly than markets are currently betting on, and that last month’s 50 basis point cut is not a sign of the kind of pace that will continue in November’s meeting. That has helped the US dollar index recover 0.3% from last week and was behind the price drop from last week’s highs for gold and silver.
Market volatility will be high in the coming days as the world waits to see the response from Israel and its allies to Iran’s missile strike. Sharp rises and falls could occur as news from the region emerges, and further highs are possible this week given the current rhetoric from leaders in the Middle East.