Daily Management Review

The Attack On Israel Increases The Appeal Of Gold And Other Safe-Haven Assets


The Attack On Israel Increases The Appeal Of Gold And Other Safe-Haven Assets
The violence that erupted in Israel this weekend has prompted a flight to safe-haven assets, as investors constantly monitor events in the Middle East to assess the geopolitical risk to markets.
Gunmen from the Palestinian organisation Hamas launched an unprecedented attack against Israel on Saturday. Western countries, led by the US, condemned the attack and offered their support for Israel.
Rising global risk will prompt investors to buy assets such as gold and the dollar, as well as increase demand for U.S. Treasuries, which have been aggressively sold off, analysts predicted over the weekend. Those themes played out as trade began in Asia on Monday. Stock futures in the United States fell, while crude, gold, and Treasuries rose.
"This is a good example of why people need gold in their portfolios. It is a perfect hedge against international turmoil," said Peter Cardillo, chief market economist at Spartan Capital Securities, who predicted that the dollar would also benefit.
"Anytime there is international turmoil, the dollar strengthens," Cardillo said.
Markets have been reacting in recent weeks to the anticipation that US interest rates will remain higher for a longer period of time. Bond yields have risen, while the US currency has been on a roll. Meanwhile, stocks suffered significant losses in the third quarter but have now stabilised.
"It seems Wall Street has a new geopolitical risk after Israel declared war with Hamas," said Edward Moya, senior market analyst at Oanda in New York.
Analysts were focusing on the impact on energy prices as they attempted to determine the ramifications. In early Asian trade on Monday, oil prices increased by more than $4 per barrel.
"Whether this is a massive market moment or not depends on how long it lasts and whether others are sucked into the conflict," said Brian Jacobsen, chief economist at Annex Wealth Management, of the situation in Israel.
Iran and Hezbollah, Iran's Lebanese allies, openly welcomed the Hamas strike.
"Iranian oil production has been increasing, but any progress they’ve been making behind the scenes with the U.S. will be dramatically undermined by Iran’s celebrating Hamas’ actions," said Jacobsen, adding that "the possible output loss matters, but it won’t be earth shattering."
"It’s most critical to see how Saudi Arabia reacts," Jacobsen said. Washington has been trying to strike a deal that would normalise ties between Israel and Saudi Arabia.
The scenario is alarming, according to David Kotok, chair and chief investment officer at Cumberland Advisors in Sarasota, Florida, since the United States is weakened by dysfunction in Washington. Republicans are seeking for a replacement for fired House Speaker Kevin McCarthy, and a budget battle is looming.
"I am very worried about more explosive situations that require U.S. determination and U.S. defense capability which is being injured," by the situation in Washington, Kotok said.