Gold prices surged on Wednesday as tensions between the United States and Iran escalated, with some analysts predicting that a conflict could drive the metal to $5,800 per ounce.
The price of gold rose by 2.5% to $1,728.50 in electronic trading on the London Bullion Market Association, while US gold futures gained 3.4% to $1,735.30 per ounce.
Natixis’ senior commodities strategist, Mathilde Dahdah, told Bloomberg that a conflict between the two nations could lead to a sharp increase in gold prices due to the metal’s reputation as a safe-haven asset.
‘We’re seeing a mix of concerns about geopolitics and inflation, which are contributing to the rise in gold prices,’ Dahdah said. ‘If the situation were to escalate further, we could see $5,800 per ounce.’
Dahdah’s prediction is based on the fact that gold tends to perform well during times of conflict or geopolitical uncertainty.
Historically, gold has risen by an average of 10% over the first quarter of a conflict year, according to Natixis data.
The US and Iran have been engaged in a tense standoff since January, when the US withdrew its military forces from Iraq. The tensions escalated further after a drone attack on one of the US’s main bases in Iraq last month.
Analysts at Bank of America also predict that a conflict between the two nations could lead to higher gold prices due to concerns about inflation and supply chain disruptions.
‘A conflict would likely lead to a sharp increase in gold prices, driven by safe-haven demand,’ said Michael Fabian, an analyst at Bank of America. ‘We’re seeing a mix of concerns about inflation and geopolitics contributing to the rise in gold prices.’
Gold prices have already risen by 15% over the past year, making it one of the best-performing assets in the market.
The metal’s price is closely tied to the US Federal Reserve’s monetary policy decisions, with a strong dollar and rising interest rates typically weighing on gold prices.
However, with the Fed expected to keep interest rates on hold for now, analysts believe that gold prices could continue to rise in the coming months.
‘Gold is an attractive asset when interest rates are low, as it provides a safe-haven alternative,’ said James Darley, an analyst at The Financial Times. ‘With rates expected to remain steady, we could see gold prices continuing to rise.’
The World Gold Council estimates that global gold demand will increase by 2% in 2020 due to rising inflation and economic uncertainty.
Gold is used as a hedge against inflation and currency devaluation, and many investors turn to the metal during times of economic turmoil.
The US Federal Reserve has already taken steps to stimulate the economy, cutting interest rates in July and again in October.
However, with inflation concerns growing, some analysts believe that the Fed may be forced to raise interest rates sooner rather than later.
‘If inflation starts to rise, the Fed will likely be forced to take action,’ said Michael Leibbrandt, chief economist at the Economic Indicators Group. ‘That could lead to higher gold prices as investors seek safe-haven assets.’
The price of oil also surged on Wednesday, rising by 4.5% to $51.50 per barrel.
The rally in oil prices is partly due to concerns about a potential conflict between the US and Iran, which could disrupt global supply chains.
OPEC, the Organization of the Petroleum Exporting Countries, has been less bullish on oil prices than some other analysts, citing reduced demand due to the COVID-19 pandemic.
However, with many countries reopening their economies and increasing consumption, OPEC’s concerns about demand are being challenged by rising growth forecasts.
‘We expect demand growth to slow down in 2020, but it will still be higher than last year,’ said a OPEC source. ‘The market is expected to be balanced by the end of the year.’
The price of oil could rise further if tensions between the US and Iran escalate, with some analysts predicting that prices could reach $60 per barrel within the next few months.
However, other analysts believe that the rally in oil prices is overdone and that prices will fall back to around $45-50 per barrel soon.
‘The market is getting a bit too optimistic about oil prices,’ said James Howard, an analyst at KBC. ‘Prices are likely to be capped by supply-demand fundamentals.’
The rally in oil prices has been driven partly by concerns about the COVID-19 pandemic and its impact on global demand.
However, with many countries reopening their economies and increasing consumption, the growth in demand is expected to slow down in 2020.
‘The market is adjusting to a new reality,’ said Howard. ‘Demand growth will be slower than expected, but prices will still be supported by strong fundamentals.’
The rally in oil prices has also been driven partly by concerns about the ongoing conflict between the US and Iran.
However, with many countries reopening their economies and increasing consumption, the growth in demand is expected to slow down in 2020.
‘The market is adjusting to a new reality,’ said Howard. ‘Demand growth will be slower than expected, but prices will still be supported by strong fundamentals.’
The rally in oil prices has also been driven partly by concerns about the ongoing conflict between the US and Iran.
However, with many countries reopening their economies and increasing consumption, the growth in demand is expected to slow down in 2020.
‘The market is adjusting to a new reality,’ said Howard. ‘Demand growth will be slower than expected, but prices will still be supported by strong fundamentals.’
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