The price of gold surged on Tuesday, buoyed by rising geopolitical tensions in the Middle East. Investors flocked to the safe-haven asset as anxieties mounted over a potential escalation in the ongoing conflict between Iran and Israel.
Spot gold prices, which track real-time transactions, edged up 0.1% to $2,385.35 per ounce, hovering close to the record high of $2,431.29 set last week. US gold futures mirrored this trend, rising 0.8% to $2,401.90 per ounce.
The primary driver behind the gold price increase was the heightened uncertainty surrounding the Middle East. Recent statements from Israel regarding retaliation for Iranian drone strikes stoked fears of a wider conflict, prompting investors to seek shelter in gold, which is traditionally viewed as a hedge against geopolitical turmoil.
This flight to safety extended to the bond market, with the US 10-year bond yield experiencing a significant surge of 14 basis points to 4.66% - the highest level in 2024. The rise in bond yields reflected a shift in investor sentiment away from riskier assets like equities and towards the perceived stability of government bonds.
The Indian gold market also witnessed a surge in prices. The MCX gold price jumped by Rs 300 to Rs 72,600 per 10 grams, mirroring the global trend. Analysts attributed this rise to a combination of factors, including the international price hike and positive cues from overseas markets.
The geopolitical tensions coincided with a period of correction in the domestic equity market. The decline in stock prices, particularly in US-sensitive IT stocks, further accentuated the demand for gold as an alternative investment option.
Looking ahead, the trajectory of gold prices will likely hinge on the evolution of the geopolitical landscape in the Middle East. If tensions continue to simmer or escalate, gold prices could witness further upward pressure. Conversely, a de-escalation of the conflict could lead to a correction in gold prices as investors shift their focus back to riskier assets.
Analysts also pointed to the upcoming policy decisions of the US Federal Reserve as a potential determinant of gold prices. Recent economic data, including strong retail sales figures, has fuelled speculation that the Fed might delay anticipated rate cuts, potentially leading to a stronger US dollar. A rising dollar could exert downward pressure on gold prices, as the precious metal becomes more expensive for investors holding other currencies.
The confluence of geopolitical tensions and a cautious approach from the US Federal Reserve has created a supportive environment for gold prices. While the near-term outlook remains positive, the long-term trajectory will depend on the interplay of these factors and their influence on investor sentiment.