TOKYO — Gold prices are rising again as worries about war in the Middle East and mounting US debt drive investors to safe-haven assets.
Gold futures in New York climbed as high as $2,003 a troy ounce at one point on Thursday, surpassing $2,000 for the second time in a week — a level last seen more than two months ago — and closing in on the August 2020 record of $2,089. The metal had fallen to almost $1,820 earlier this month.
Unusually, gold has risen alongside 10-year Treasury yields, bucking the usual inverse relationship. The benchmark 10-year yield has been hovering near 5% and even briefly topped that level for the first time in 16 years.
One of the two main risks pushing money into gold is the Israel-Hamas war, sparked by the militant Islamist group’s attack on 7 October. Israel is preparing for a full-scale ground invasion of Gaza, which would take the conflict to a new level.
Geopolitical risks that sour market sentiment make gold, which is seen as a safe-haven asset with inherent value due to its rarity, a favourite destination for investors. Shortly after Russia’s invasion of Ukraine, the metal climbed to $2,078 in March 2022, close to its 2020 record.
The other concern is the fiscal situation in the US, where the national debt has reached a record of more than $33 trillion, according to the Treasury Department. Treasury issuance has accelerated since Congress raised the nation’s debt ceiling, distorting the balance between supply and demand. Fighting among lawmakers over a temporary government funding measure has also added to investor unease.
Normally, when interest rates rise, gold prices fall as investors move into interest-bearing assets that benefit from higher yields. But as Treasury yields rise due to fiscal uncertainty, investors are instead turning to gold, which – unlike equities, corporate bonds or even government debt – is not vulnerable to default by its issuer.
Naohiro Niimura, a partner at Japan-based Market Risk Advisory, analyses the precious metal’s price on the basis of two components: the benchmark price, which is based on gold’s inverse relationship with real interest rates, and a risk premium arising from other factors such as economic jitters.
Niimura put the risk premium at $1,431 on Tuesday, more than two and a half times the reference price based on historical data. The premium has risen by $115 since 6 October, the day before the Hamas attack, and now accounts for 70% of the total price.
“Buying driven by safe-haven demand amid tensions in the Middle East has increased, pushing up the risk premium,” Niimura said.
Some observers note that emergency gold buying tends to be short-lived. The metal’s price soared during the Cold War and the threat of nuclear war between the US and the Soviet Union. But the 1990 and 2003 spikes, driven by the Gulf and Iraq wars respectively, proved short-lived.
“Gold price rallies caused by geopolitical risk are often temporary,” said Tsutomu Kosuge, who heads commodity research firm Marketedge.
But investors could become even more bearish. Fighting between Israel and Hamas could drag on or spread to other countries in the Middle East. Moody’s Investors Service warned in September that a government shutdown would hurt US credit.
“Bruce Ikemizu, chief director of the Japan Bullion Market Association, said: “Depending on the situation, gold prices could reach a new high.
