Gold prices extended their significant rally on June 16 as rising geopolitical tensions between Israel and Iran polished the safe-haven appeal of the yellow metal. Gold's August futures of the Multi Commodity Exchange (MCX) hit a fresh all-time high of Rs 1,01,078 per 10 grams today.
Gold continues to trade at significantly high prices in the domestic markets as well. The price of 10 grams of 24 carat gold stood at Rs 1,01,510, according to data on Good Returns. This is slightly lower than the previous closing price cited by the site.
Lat week, Israel carried out what it called as "preemptive strikes" against Iran. Israeli Prime Minister Benjamin Netanyahu said the airstrikes were aimed at key parts of Iran's nuclear and military program. Iran retaliated by launching over 100 drones at Israel, raising concerns over a possible full-blown war in the oil-rich middle east.
The Israel-Iran conflict has now entered its fourth consecutive day, without any signs of slowdown. Israel recently struck Fordow nuclear facility in Iran, which triggered a 2.5-magnitude earthquake.
The escalating tensions between the two countries is expected to continue to put pressure on US dollar and overall stock markets. “The uncertainty stemming from the Israel-Iran conflict has created a risk-off in global markets. The safe haven buying is keeping gold firm but dollar continues to be weak,” says VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.
Also read: Gold back in focus as equities face pressure amid growing geopolitical risks
Carsten Menke, Head of Next Generation Research at Julius Baer, has however advised caution. "With the situation being highly in flux, it is too early to tell whether this shock will lastingly lift prices. This could be the case if there is a significant economic impact of the conflict, e.g. via disrupted oil supplies, or if it spreads in the region. Historically, gold does not have a very good track record as a hedge against geopolitical shocks…We assume that the reaction is driven by some speculators and automated trading systems in the futures market, rather than by genuine safe-haven demand," he said.
"While such geopolitical shocks historically did not lastingly lift gold prices unless there was a significant economic impact, e.g. as during the 1970s oil crises, we believe it is much too early to tell in this case. Should there be disruptions to oil supplies – either directly due to attacks or indirectly due to politically imposed measures – or should the conflict spread in the region, then gold could show a more lasting reaction. Otherwise, the market is likely to lose its interest in the conflict sooner or later, as suggested by similar geopolitical shocks in the past," he added.
Also read: Silver ETF AUM doubles in a year, outpaces gold ETFs despite lower returns
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