Geopolitical situation in the Middle East: Gold and stock markets react sensitively to Israeli ground offensive

Geopolitical situation in the Middle East: Gold and stock markets react sensitively to Israeli ground offensive

A fear trade occurred on Friday evening, with investors exiting stocks and investing in gold. The price of gold rose from $1,982 to $2,009. However, there was a slight downward move this morning and the price of gold is currently at $1,996. The US stock indices were able to recover somewhat from their low on Friday evening. The focus is now on the Israeli ground offensive in the Gaza Strip.

This geopolitical situation not only affects the stock markets, but also the price of oil. The WTI oil price rose from $83 to $90 since the Middle East conflict began on October 7th, only to lose all of its gains. First there was fear of a shortage of oil supplies from the Middle East, then there was relaxation when there were no signs of a shortage. However, there is now a real risk of escalation due to the ground offensive. With an oil price of $83.91, the markets remain calm for the time being, but stock markets and gold appear to be reacting more sensitively to the situation.

Depending on how the ground offensive develops, gold and stock markets may react differently. Escape movements and relaxation movements can occur. The recent Bloomberg headline “Oil and bonds fall as Middle East fears ease” shows that this geopolitical situation is affecting markets. The development of the situation in the Middle East is crucial for how the markets develop.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, notes that demand for gold as a safe haven has increased due to Israel's increased ground attacks in the Gaza Strip. The yellow metal has gained in value in recent weeks, but a further escalation in tensions in the Middle East could keep appetite for gold alive. The next natural target value is around $2080, the previous all-time high.

In the energy sector, oil prices have fallen over the last week, with US crude oil trading below $85 this morning. Israel has bombed targets in neighboring countries and sent troops and tanks to the northern Gaza Strip, but has avoided a massive ground invasion for now. The expectation of a long battle is dampening energy investments. However, the risk of sudden jumps in the event of supply interruptions remains.

Analysts remain cautious, warning of a collision between tight financial conditions and geopolitical risk aversion. Interest rate volatility is currently driving outflows from emerging market assets and developed market equities. Israel's ground offensive in Gaza is expected to have limited long-term impact on asset markets unless the conflict spreads to other regions, such as Iran.

According to a report by finanzmarktwelt.de