Gold surges above $2000 as Israel-Hamas war intensifies

Approximately three weeks after the militant group Hamas staged a surprise attack killing over 1,400 Israeli civilians, the Israeli military moved ground forces expanding their activity into Gaza. The increased tensions in the Middle East resulted in gold futures surging above $2000 per ounce. As of 5:07 PM EDT, gold futures basis, the most active December contract (GCZ23) is well above $2000 and currently fixed at $2016.30. Gold futures opened below $1990 traded to a high of $2019.70 and are moving into their settlement price now.

According to the Associated Press (AP), “Israel knocked out internet and communication in the Gaza Strip in stepped-up bombardment Friday night, largely cutting off its 2.3 million people from contact with each other and the outside world and creating a near-blackout of information, as the military said it was “expanding” ground operations in the territory.”

This marks the third consecutive week in which gold prices have risen. Gold futures opened on Monday during the week of October 9 at approximately $1860 per ounce, and closed above $1940 per ounce. Last week, gold gained an additional $52 per ounce, settling just below $2000 at $1994. The increased tensions in the Middle East coupled with reports that indicated that the economy in the United States was resilient and strong, which will strengthen the hand of the Federal Reserve to keep interest rates “higher for longer” were components of the recent rise in the precious yellow metal.

Today, the BEA (Bureau of Economic Analysis) released its PCE index inflation report for September. “Personal income increased $77.8 billion (0.3 percent at a monthly rate) in September. Disposable personal income (DPI)—personal income less personal current taxes— increased by $56.1 billion (0.3 percent). Personal outlays—the sum of personal consumption expenditures (PCE),”

The report revealed that inflation in the United States as measured by the PCE index was currently at 3.4% year-over-year in September. The report came in line with expectations. The report also revealed that the annual core PCE index rose 3.7% just below expectations of an annual rate of 3.8%.

Today’s inflation report had a muted or fractional effect on the dollar. The dollar lost 0.04% taking the index to 106.38. Overseas, for the first time in 15 months, the European Central Bank left its benchmark interest rate unchanged following reports of soft PMI readings.

Geopolitical tensions have risen throughout the world as the Russian invasion of Ukraine continues, China and the United States tensions continue to mount in the China Sea, and the recent conflict in the Middle East.

Combined they are more than alarming and overwhelmingly moved gold to higher prices, dwarfing recent economic reports of U.S. GDP and inflation. With no real solutions to any of these conflicts, we could continue to see investors flock to safe-haven assets, with gold being at the forefront. With that in mind, it does not seem unlikely that gold at some point could easily trade to a new record high.

Wishing you as always good trading,