Gold prices continued to surge on Sunday after a rebound last Friday, as geopolitical tensions heightened in the Middle East.
FX Street reported that gold prices increased by 0.94 percent to trade at $1,850 per ounce. This is a new five-day high, as gold hit $1,856 in the opening trades.
Geopolitical tensions in the Middle East flared again after Hamas in Gaza, Palestine, launched a surprise attack on Israeli towns. Israel responded with airstrikes on Gaza and declared war on the Palestinian enclave. Western countries, led by the U.S., have declared support for Israel.
The conflict can escalate and spread, raising concerns about its impact on global markets. With global uncertainties on the horizon, investors shifted to seek safety in traditional assets like gold, the U.S. dollar and Treasuries.
"This is a good example of why people need gold in their portfolios. It is a perfect hedge against international turmoil," said Peter Cardillo, chief market economist at Spartan Capital Securities.
Gold prices also benefit from concerns that the geopolitical conflict may lead to a potential spike in oil prices. So far, oil prices have risen by more than four percent in response to the conflict, raising concerns over the oil supply.
Oil price rises
According to Bloomberg, West Texas Intermediate and Brent moved toward $90 per barrel following the attack.
In early Asian trading on Monday, global benchmark Brent crude futures surged by up to 4.1 percent, reaching a peak of $88.15 per barrel. This marked a significant increase from the closing price of $84.58 recorded on October 6. However, this was still below the recent one-year high of $97.69 a barrel on September 28.
Meanwhile, the U.S. West Texas Intermediate crude was at $87.02 a barrel, up $4.23, or 5.11 percent.
The increase reversed the largest weekly decline since March when Brent crude fell 11 percent, and WTI crude fell eight percent. This was due to concerns about rising interest rates and their impact on global demand.
The impact on the broader oil markets will depend on whether the conflict extends to other parts of the Middle East. Otherwise, analysts say the price fluctuation tends to be short-lived.
Oil traders are closely watching Iran as a major oil producer for potential future risks to its oil supply and exports should Western nations officially link Iran to Hamas.
Rising oil prices could add to already high global inflationary pressures, with investors still debating the odds of another rise in interest rates by the Federal Reserve this year.
The U.S. has been trying to broker a deal between Saudi Arabia and Israel in which Riyadh would normalize ties with Israel in exchange for a U.S.-Saudi defense deal. Saudi officials had reportedly agreed to increase oil production next year as part of the proposed deal, which would have helped to ease supply tightness.
U.S. dollar rebounds
Gold and oil prices are not the only ones affected by the conflict, as the U.S. dollar and the yen strengthened against the euro, pound and riskier currencies. Meanwhile, earlier gains in Australian and New Zealand bonds have been wiped out.
The U.S. dollar index bounced back after three consecutive days of losses, trading at around 106.20 on Sunday night. As of writing, the number has risen to 106.33. This increase can be attributed to the better-than-anticipated U.S. nonfarm payrolls data released last Friday.