The gold market saw a significant spike on October 1, 2024, with prices rising over 1%, driven by escalating geopolitical tensions in the Middle East. Iran’s decision to launch around 200 ballistic missiles at Israel marked a dramatic escalation between the two adversaries, threatening to plunge the region into further chaos. As a result, investors quickly flocked to safe-haven assets such as gold, pushing XAU/USD prices to fresh highs.
Geopolitical Overview: Iran’s Missile Attack on Israel
On the evening of October 1st, 2024, Iran fired approximately 200 ballistic missiles at Israel in retaliation for a series of Israeli military operations in Lebanon. These operations included the killing of Hassan Nasrallah, the leader of the Iran-backed Hezbollah, in an Israeli airstrike over Beirut. The escalation came just hours after the United States warned that an attack from Iran was imminent.
The Israeli Defense Forces (IDF) reported that many of the missiles were intercepted, but Iranian state television claimed that up to 90% of the missiles hit strategic targets in Israel. One casualty was confirmed in the West Bank, and reports of damage were scattered across different regions of the country.
This retaliatory attack followed a summer of rising tensions, with Israel accused of killing Hamas political leader in Tehran in July, a claim that only further aggravated the situation. Israel's Prime Minister, Benjamin Netanyahu, responded swiftly, vowing that Iran would "pay" for its actions and promising severe retaliation.
“We are on the edge of an all-out war between Israel and Hezbollah, and potentially Iran,” warned Bruce Riedel, a former senior U.S. intelligence officer, signaling that the entire region could be at risk of descending into widespread conflict.
Impact on Global Markets: Oil, Bonds, and Gold Surge
The missile strikes and the subsequent political fallout caused significant disruptions in global financial markets. Oil prices surged more than 5% amid concerns over potential disruptions in supply from the energy-rich Middle East. Additionally, stock markets, which had been experiencing a persistent rally, were knocked off course as investors sought refuge in safer assets. Bonds and gold also experienced a notable rise as investors retreated from riskier investments, with gold emerging as one of the primary beneficiaries.
Gold Price Reaction: Safe-Haven Demand Drives Surge
In response to the heightened geopolitical risks, the price of gold climbed more than 1%, pushing XAU/USD to a high of $2,673. This rally occurred despite the backdrop of overall U.S. dollar strength. Risk aversion was clearly driving the market, as traders pivoted their attention from strong U.S. jobs data to the growing instability in the Middle East.
Gold prices, which often react positively to geopolitical turmoil, have been on an upward trajectory throughout 2024, but this latest spike represents a shift in market focus away from economic fundamentals toward safe-haven demand. The price of gold found strong support at $2,665, while analysts are now watching for a potential breakout above the all-time high of $2,685.
If tensions between Iran and Israel continue or escalate further, gold could push toward the $2,700 mark. However, if geopolitical risks ease, there could be a pullback, with support levels at $2,650 and $2,600 in play.
US Economic Data and Central Bank Policies: A Secondary Influence
Amidst the geopolitical turbulence, important U.S. economic data also played a role in shaping market sentiment. The U.S. ISM Manufacturing PMI for September came in at 47.2, showing that the manufacturing sector remains in contractionary territory. At the same time, job openings surged to 8.04 million, indicating a resilient labor market.
Despite these strong U.S. fundamentals, the Federal Reserve’s monetary policy remains a key consideration for the gold market. Fed Chair Jerome Powell recently pushed back expectations for a large 50 basis points interest rate cut in November, signaling that the central bank is likely to proceed more cautiously. As a result, the probability of a 50 bps rate cut has fallen from 58% to 39%, according to the CME FedWatch tool.
While these economic factors are important, the gold market’s immediate focus remains firmly on the geopolitical stage, with any shifts in conflict dynamics likely to dominate price action in the coming days.
The Bigger Picture: How Long Will Geopolitical Risks Drive Gold?
As the conflict between Iran and Israel unfolds, the global financial markets are watching closely for further developments. A wider conflict that drags in more regional powers, such as Hezbollah and potentially even direct Iranian involvement, could drive gold prices higher still. Already, Israel’s focus has shifted from operations in Gaza toward Lebanon, sparking fears of a broader war that could significantly impact the region’s economic stability.
Iran’s missile attack on Israel followed months of simmering tensions, with Iran unveiling new long-range missile capabilities earlier this year. The country’s substantial missile arsenal, including ballistic and cruise missiles capable of striking targets up to 2,000 kilometers away, poses a serious threat to Israel and could escalate the situation further.
For investors, gold remains a critical asset in these uncertain times. As geopolitical risks remain elevated, the likelihood of new record highs in gold prices grows stronger. However, traders should also be cautious of potential pullbacks if diplomatic efforts manage to de-escalate tensions or if U.S. economic data continues to paint a resilient picture for the U.S. dollar.
