Gold shines bright for investors as tension in West Asia flare up

Gold does glitter. The yellow metal has been considered as a beneficial asset during periods of uncertainty. Historically, it generated long-term positive returns at all times. Diverse sources of demand for the metal give it particular resilience and potential to deliver solid returns in various market conditions.

Gold is often used as an investment tool to protect and enhance wealth over the long term, but it also records healthy demand as a consumer good, via jewellery and technology demand. This counter-cyclical investment demand drives gold prices up during economic uncertainty. 

During economic expansion, the pro-cyclical consumer demand supports its performance. All these factors give gold the ability to provide stability under a range of economic environments.

The precious metal witnessed a 3 percent gain in just one week driven primarily by escalating tensions in the Middle East.

The late-night attack on April 13 by Iran against an alleged airstrike by Israel threatens to blow up the fragile situation in the region and drive up a significant uptick in hostilities. According to reports, Israel faced attacks from approximately 300 drones and missiles launched by Iran, some originating from Iraq and Yemen. This development is likely to trigger investors to flock to gold as a safe-haven asset.

The prospect of a widening conflict in the Middle East has reinforced gold’s status as the preferred hedge against market volatility and currency fluctuations, which is likely to gain momentum as markets reopen tomorrow.

Despite concerns about overbought conditions, the yellow metal notched its fourth consecutive week of gains, marking its longest winning streak since early 2023. 

Prices of the precious metal soared past the $2,410 per ounce mark, setting a new record high and may surge towards $3,000, according to market experts. 

Analysts warn of potential liquidation risks, while others remain bullish on the metal’s outlook with banks and brokerages issuing higher targets.

According to UBS, JP Morgan and Citi gold is likely to hit the $2,500 mark on the back of ongoing geopolitical tensions and inflationary pressures. The Bank of America and economist David Rosenberg have set even higher targets and see the precious metal at $3,000 by 2025.

Market experts are of the view that gold’s current momentum is unlikely to wane due to persistent geopolitical uncertainties and macroeconomic challenges in the global economy. Any pullback in prices can be a buying opportunity, according to the experts.

The perfect storm of geopolitical tensions, inflationary pressures, and demand for safe-haven assets has set the perfect stage for gold to continue its upward trajectory.