October 24

Gold Amidst Chaos: The Israel-Hamas Conflict’s Impact on the Precious Metal

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Imagine you're sipping your morning coffee in your living room on a Saturday morning. That was the reality for thousands of Israelis on Saturday, October 7.

Yet, this mundane normalcy changed forever in the blink of an eye. Nearly 2,000 Hamas militants breached the Gaza border, raiding surrounding Kibbutzim, military bases, and a music festival. They killed over 1,400 people and kidnapped more than 200, including women, children, and the elderly. Israel retaliated with powerful airstrikes on the Gaza Strip.

The U.S. dispatched two aircraft carriers and additional resources to the Middle East. Hezbollah in Lebanon launched missile strikes, and as Iran and Russia escalated their rhetoric, other Arab militants in the region expressed a desire to join the conflict.

The world is a delicate house of cards, and we're on the brink of a regional war if not a broader global conflict. One misstep, one unexpected turn, and the stability of your world as you knew it could come crumbling down, too.

But, as challenging as it may be in the current climate, let's set aside the fear-mongering and distressing imagery. Instead, let's concentrate on the tangible facts and the data and understand why gold is in the strongest position it has been in for a long while.

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Israel vs. Hamas and The Immediate Impact on Gold

Anyone familiar with Israel, Gaza, or the West Bank likely woke up to the news on October 7, thinking, “Here we go again.” But ask anyone on the ground, and they'll say this time feels different. While Israel has faced many challenging days, wars, and painful events throughout its history, none compare to the events of that fateful Saturday.

It wasn't merely a terror attack but a massacre, marking the largest one-day death toll of Jews since the Holocaust. Responses from other nations have the potential to escalate the situation further. The U.S. promptly sent two aircraft carriers to the Middle East. Many Western countries expressed strong support for Israel's right to self-defense.

Conversely, countries like China and Russia advocated an immediate ceasefire without explicitly condemning Hamas. Iran even warned Israel that their "time is over." So, as this conflict continues testing geopolitical alliances and stirring financial markets, what could the trajectory of gold prices look like?

Related: Central Banks Are Buying Gold (What You Need to Know)

Historical Context

Throughout history, gold has often performed best during global conflicts. In the 1970s, amidst events like the Vietnam War and the Iranian Revolution, gold leaped from $35 an ounce in 1971 to $850 by 1980 — a whopping 2300% jump.

In 1990, Iraq's invasion of Kuwait pushed gold up over 20%, going from $345.85 in June to $415.70 by August. The 21st century was no exception: gold's value shot up over 560% post-9/11 in a decade. Even a 2017 spat between Trump and Kim Jong Un led to a near 11% gold price hike.

In 2020, the assassination of Iranian General Qassim Soleimani saw a 4.1% gold increase within a week. And between December 2021 and March 2022, gold surged another 18.14% amidst Russia-Ukraine tensions. 

Current Surge in Gold Prices

The Middle East is increasingly heating up, and so is the price of gold, reaching a seven-month high. Following the Hamas invasion and rising global temperature, investors are clearly worried about the uncertainties ahead and see gold as a safe haven.

Gold climbed over 10% from a low of $1,809.40 the day before the Hamas invasion to $1,994.30 on October 23, 2023. Furthermore, on Friday, October 13, following Israel's first special ground operations inside Gaza, gold's price surged by 3%, concluding a week in which it rose by over 5%.

Related: How to Diversify Your Savings with Physical Gold & Silver

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Discover how precious metals like gold and silver can supercharge your IRA or investment portfolio.

Future Trajectories for Gold Amid the Conflict

As global events unfold with the escalating Israel-Hamas conflict, investors worldwide sit on the edge of their seats, specifically watching gold's performance. What's next for gold and its role in the global economy will largely depend on the conflict's direction. 

The Escalation Scenario

The Middle East is a complex region that has seen its tensions ramp up. If the Israel-Hamas situation intensifies, drawing in more global players or leading to more considerable market sell-offs, gold prices could approach and exceed all-time highs. Add potential disruptions in oil supplies to the mix, and you've got a recipe for skyrocketing gold prices.

Remember the 2006 clash between Israel and Hezbollah in Lebanon? It sent global oil prices, and consequently gold, through the roof. Craig Erlam, an analyst at OANDA, highlights that in times of heightened uncertainty, such as now, traders lean towards assets with a solid track record.

As U.S. yields soar and the attractiveness of Treasuries wanes with the current blend of geopolitical and economic volatility, gold's appeal becomes more pronounced, especially if the conflict intensifies.

Related: How to Buy Physical Gold & Silver (Tax-Free) with Your 401(k)

The De-Escalation Scenario

But what if quiet prevails and the conflict reaches a ceasefire? Though it may seem unlikely at the moment, the future is unpredictable. Reports suggest Hamas is considering the release of 50 hostages, while the U.S. is urging Israel to delay a full-scale ground invasion.

Gold might lose some of its recent shine if these developments lead to calmness. Feeling a touch more optimistic, investors might move away from this safe haven, possibly leading to a dip in gold prices. Plus, if positive economic data emerges from the U.S. or the U.S. dollar strengthens, it could further amplify the trend.

Again, this scenario seems less likely at the moment. But remember: a strong dollar tends to have an inverse relationship with gold.

Related: Feds Hit Pause on Interest Rate Hikes - What Does it Mean for Gold?

Key Takeaways

War is not a game. For countless individuals directly affected by this conflict worldwide, recent weeks have been traumatizing. While the silver lining might be that gold seems poised for strong performance throughout the year, especially if the conflict persists as current signs suggest, remember that nobody wins in war.

From a humanitarian standpoint, we can only hope for quiet and for affected families and innocent civilians who never asked for this to find healing. From an investment angle, as detached as it may seem, keep your eyes and ears on unfolding developments to make informed decisions.

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About the author 

Robert Samuels

Robert Samuels is a financial copywriter and business advisor. After teaching himself stock market basics and financial fundamentals, he leveraged this newfound passion into a Master’s Degree from Harvard University’s ALM Finance extension program, where he received a 3.87 GPA and Dean’s List distinction.

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