Gold hits another record high, oil surges amid Middle East tensions

Gold prices have surged to another historic peak, while oil prices continued to rise amid escalating tensions in the Middle East on Tuesday.

Meanwhile, stock markets experienced a downturn as traders expressed concerns about the sustainability of the recent rally.

The value of the precious metal surged to $2,266.85 per ounce during morning London trading sessions, extending its remarkable record-breaking streak. This surge was attributed to both the escalating geopolitical tensions and the anticipation of potential interest rate cuts in the near future.

Simultaneously, oil prices saw further increases, fueled by Iran’s warning to retaliate against Israel following a deadly air strike on its consular annex building in Damascus, Syria. This event has heightened fears of a potential spillover of the ongoing conflict in Gaza throughout the region.

However, Rabobank analyst, Jane Foley commented on the situation, stating that gold’s longstanding appeal as a safe haven asset has been reignited by the current geopolitical turmoil, particularly the crisis unfolding in the Middle East.

“The possibility of an escalation in the Middle East given current headlines regarding Iran’s accusations of Israeli strike on a consulate building in Syria are underpinning gold prices today,” she added.

Gold prices are rising as traders anticipate interest-rate cuts by the European Central Bank, Bank of England and the US Federal Reserve in June as inflation is slowing, analysts said.

“When interest rates fall, gold becomes relatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment,” said City Index analyst Matthew Weller.

Stocks retreat

In equities trading, New York’s main indices opened lower, a day after finishing mixed on stronger-than-expected readings of US manufacturing and prices paid sparked questions about the Fed’s timeline for cutting interest rates.

The Institute for Supply Management’s gauge of factory activity showed expansion for the first time in March, after 16 straight months of contraction.

But more concerning for investors were figures showing that prices paid hit their highest mark since July 2022, which fanned worries that inflation could start to creep back up and complicate the Fed’s plans to cut rates.

Markets are now pricing in about 65 basis points of cuts this year, lower than the Fed’s guidance of 75 points, and yields on US government bonds have risen.

Market analyst Fawad Razaqzada at City Index and FOREX.com said that concerns about the rally that has seen the S&P 500 rise around 28 percent since October has prompted some profit-taking.

“Following such a big move, the risks of a correction are high, especially when you consider for example that US oil prices are pushing $85 per barrel and governments are facing rising cost of servicing their debt as yields climb,” he said.

In Europe, London briefly broke above 8,000 points to enter record closing territory thanks to higher oil prices but gave up its gains.

Paris and Frankfurt were also in negative territory in subdued deals following a four-day Easter shutdown.

In Asia, Hong Kong stocks rallied as Asian traders also returned from an extended weekend break to forecast-beating Chinese factory data that lifted hopes for the world’s number-two economy, though other Asian markets were mixed.