As Turmoil in the Middle East Affects the Economy, Gold Continues to Rally


Written by Philip Diehl

Apr 25, 2024

The current rally in gold prices—now surpassing an increase of $500/oz.—began within hours of the October 7, 2023, Hamas attack on Israel. Since then, extraordinary demand from central banks and Chinese retail buyers and uncertainty about inflation and interest rates in the United States have continued to fuel record prices for physical gold.

Now conflict in the Middle East has once again returned to center stage, as Iran retaliated against an Israeli strike on its embassy in Syria, and Israel, in turn, retaliated against Iran.

The Middle East is one of the most volatile areas in the world.

The Middle East has a history of similar cycles of violence, but these recent exchanges are the most dangerous in decades. Iran has multiple means of responding, if it so chooses, with its own weapons or through proxies such as Hezbollah in Lebanon.

Multiple geopolitical fault lines run through the region. There are decades-long tensions between:

• Israel and Iran,

• the United States and Iran,

• Israel and Arab states,

• the United States and Russia, and of course,

• the West and non-state terrorist organizations.

International oil markets are especially vulnerable to tensions in the Middle East.

A third of the world’s oil comes from the Middle East, and 30% of global container shipping passes through the Red Sea. The Strait of Hormuz, off the southern coast of Iran, is a choke point for the transport of oil out of the region and around the globe.

If Iran chooses to close the Strait, it could easily do so by sinking a tanker in the narrows. The impact on oil prices, the global economy, and politics around the world would be profound.

Gold continues to act as a hedge against geopolitical turmoil.

As I said, gold has risen by more than $500/oz.—or 29%—in the 6+ months since October 7, 2023. I think there is a broad market consensus that prices are likely to continue their assent as buyers seek the safe haven gold has offered for thousands of years.

No other asset provides this kind of protection in times of such uncertainty. I encourage you to contact us here at U.S. Money Reserve to learn more.


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