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 jumped as much as 10 per cent to $1,996 per troy ounce, a five-month high, after Hamas launched attacks on Israel two weeks ago.
With the region at risk of sliding into wider conflict, investors have been snapping up gold, which is seen as a store of value in times of geopolitical and market uncertainty.
“It’s the geopolitical risk premium that has come into 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 – which has largely held since the 2008 financial crisis. Normally, higher Treasury yields push gold prices lower by making the zero-yielding metal less attractive in comparison.
This relationship broke down during the huge rise in real yields last year, with gold supported by record central bank buying as some countries sought to reduce their reliance on the dollar after Washington weaponised its currency in sanctions against Russia.
Analysts said gold was also likely to have benefited from the uncertainty in the Middle East as it added to the Federal Reserve’s caution over the future direction of US interest rates. On Thursday, Fed Chairman Jay Powell said the geopolitical tensions sparked by the Israel-Hamas war “pose significant 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 that yields have risen so much. That has probably spooked people about the fragility of the markets,” said Ryan McIntyre, managing partner at Sprott Inc, a precious metals investor with more than $25 billion under management.
Marcus Garvey, head of commodity strategy at Macquarie, said gold’s rally was also partly due to traders who had been betting 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 in the Shanghai price trading at a significant premium to its London equivalent. In September, the gap hit a record high after China’s central bank temporarily curbed gold imports to defend the renminbi.
However, some analysts question whether the support for gold prices is broader than an investor rush for safe havens to park their cash.
“The rise in real yields this week should have really pulled the rug out from under gold,” said Adrian Ash, director of research at BullionVault, a precious metals marketplace. “The big question at the moment is who is holding the price up. … I think it’s the central banks.
