Why Is Gold in Demand Again? Uncertainty Over Iran-Israel War
The recent animosity between Iran and Israel has pushed gold to the center stage as a safe haven investment, causing its price to increase over the past few days. With uncertainty across the globe on the rise, investors are turning towards gold as a means of protection from market turbulence. Gold's price hike recently is an instant reaction to the growing conflict between the two countries, as per Praveen Singh, Senior Fundamental Research Analyst, Mirae Asset Sharekhan."
On June 16, spot gold jumped to $3,451 in overnight trade as tensions between Iran and Israel escalated. While the price relaxed later in the day on hopes that the conflict would be contained, the metal is in high demand with investors looking for havens. Spot gold is currently trading at $3,398, falling almost 1% on the day.
Central Banks' Buying Spree
The gold demand is not confined to retail investors. Central banks across the globe are also adding to their gold holdings, further adding to the allure of the metal. Total known worldwide gold ETF holdings were at 88.85 as of June 13, with ETFs witnessing net inflows for the third consecutive week. This trend reflects an increasing realization of gold as a quality store of value.
Factors Supporting Gold Rally
There are various reasons behind the rally of gold, which include:
- Geopolitical tensions: Ongoing tensions between Iran and Israel, along with other international conflicts, are forcing investors toward safe-haven assets such as gold.
- Weakening US Dollar: The Sinking of the US Dollar Index has made gold more desirable for investors, as a weak dollar would push the price of the metal up.
- Central banks' purchases: Central banks' enhanced gold purchases are contributing to the metal's popularity.
- Budget worries: Increasing fears over fiscal stability and inflation are also underpinning the gold boom.
- Gold Price Outlook
The short term is going to rely on the situation in the Iran-Israel war. If both nations de-escalate the war and open lines of communication, then gold can decline to the level of $3,228. On the other hand, if the situation is not clear-cut and war continues, then gold is most likely to be sustained. With various factors backing the rally of gold, it can be very safe for the traders to adopt a defensive strategy, with support at $3,375 and resistance at $3,450.
Conclusion
As the world continues to live in uncertainty, gold is set to remain an investor's darling when it comes to safe havens. As central banks continue to buy gold to add to their reserve holdings and individual investors rush to the metal, the demand for gold will continue to be robust. With the situation in the Middle East still unfolding, gold prices will continue to be volatile, but the desire for the metal as a safe haven investment will not take a back seat.
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