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Gold prices have rallied sharply since the Hamas-Israel conflict broke out, further highlighting the divergence in its long-term relationship with US Treasuries as investors flee to the haven asset.
Prices of the precious metal have surged as much as 10 per cent to $1,996 per troy ounce, hitting a five-month high, after Hamas launched attacks on Israel a fortnight ago.
With the region at risk of tipping into wider conflict, investors have bought gold, which is regarded as a store of value during times of geopolitical and market uncertainty.
“It’s the geopolitical risk premium that has come in for gold,” said Nicky Shiels, metals strategist at MKS Pamp, a Swiss precious metals refiner and trader.
However, gold’s rise has also put further stress on its typical correlation with real yields — US bond yields adjusted for inflation — that has largely held since the 2008 financial crisis. Normally, higher yields on Treasuries push the price of gold lower by making the zero-yielding metal less attractive by comparison.
That relationship has broken during the huge rise in real yields over the past year, with gold having been supported by record central bank buying, as some countries aimed to reduce their reliance on the dollar after Washington weaponised its currency in sanctions against Russia.
Analysts said that gold was also likely to have benefited from the uncertainty in the Middle East because it added to the Federal Reserve’s caution on the future direction of US interest rates. On Thursday, Fed chair Jay Powell said the geopolitical tensions sparked by the Israel-Hamas war “pose important risks to global economic activity”.
The violence in the Middle East has reversed gold’s recent slide, as rising bond yields pushed the yellow metal to $1,820 per troy ounce.
Others argue that the speed of the bond market repricing is actually pushing investors into gold.
“The other part of the story is having yields increase so much. That has probably frightened people on the fragility of the markets,” said Ryan McIntyre, managing partner at Sprott Inc, a precious metals investor with more than $25bn in assets under management.
Marcus Garvey, head of commodities strategy at Macquarie, said that gold’s rally was also in part down to traders who had bet on the metal’s decline being forced to exit their positions. “A key aspect is that the starting point was that the market was quite short,” he said.
Global prices have also been buoyed by strong demand in China, reflected by the price in Shanghai trading at a notable premium to its equivalent in London. In September, it reached a record difference after China’s central bank imposed temporary curbs on gold imports in a bid to defend the renminbi.
However, some analysts are wondering whether support for gold prices is wider than an investor rush for safe places to park their cash.
“The surge in real yields this week really should have pulled the rug under gold,” said Adrian Ash, director of research at BullionVault, a precious metals marketplace. “The big question at the moment is who is holding up the price . . . I think it’s the central banks.”
