The gold market experienced a significant rally on Wednesday, propelling prices close to a one-month high, as intensifying conflict between Israel and Hamas heightened demand for safe-haven assets. Meanwhile, copper prices also saw an upswing, benefitting from positive economic indicators out of China.
The recent bombing of a Gaza hospital, which claimed the lives of numerous Palestinians, marked a potential escalation in the Israel-Hamas war. This development, coupled with the cancellation of a scheduled summit with U.S. President Joe Biden by Egyptian and Palestinian leaders, amplified concerns that the conflict could spill over and draw in other Arab countries, further destabilizing the broader Middle East region.
The escalating tensions spurred investors to seek refuge in safe-haven assets, leading to a surge in gold prices. In the early hours of Wednesday, spot gold rose by 0.8% to reach $1,937.80 per ounce, while gold futures expiring in December jumped by 0.8% to $1,950.65 per ounce. These price levels brought both instruments close to a one-month high.
The recent concerns over an escalation in the Israel-Hamas war have been a major driving force behind the rally in gold prices over the past week, with demand for traditional safe havens notably increasing. As a result, gold recorded a gain of 5% in the previous week.
However, the recent surge in demand for gold has moderated somewhat in the face of renewed fears over higher U.S. interest rates. The release of retail sales data raised concerns about persistent inflation, which could prompt a more hawkish stance from the Federal Reserve.
Throughout this week, market participants will closely monitor a series of U.S. economic indicators and statements from Fed officials, particularly the upcoming address by Chair Jerome Powell on Thursday. Investors will pay close attention to any signals of a more hawkish stance from Powell, given the recent uptick in inflation.
Rising interest rates typically have a negative impact on gold prices as they increase the opportunity cost of investing in the precious metal. This trend has weighed on gold prices in the past year and is likely to limit significant gains, even as safe-haven demand continues to rise.
In another market development, copper prices also surged on Wednesday, buoyed by positive news on China’s economic front. Copper futures recorded a 0.6% increase, reaching $3.6128 per pound. China reported better-than-expected growth of 4.9% in the third quarter, indicating that stimulus measures implemented by Beijing were yielding positive results.
Although the quarter-on-quarter growth remained below pre-COVID levels, the data provided hope that economic conditions in the largest copper-importing country would continue to improve, boosting demand for the industrial metal.
Market attention is now focused on the loan prime rate decision by the People’s Bank of China, expected on Friday. While it is widely anticipated that the bank will maintain rates, investors will closely watch for any surprises or signals regarding the future direction of China’s monetary policy.