Gold price reacts to geopolitical tensions

After a Malaysian passenger plane was shot down in eastern Ukraine, gold buying panic raged in the markets. As a result, gold recorded its largest daily gain in the past month. The Israeli offensive in Gaza also provides gold with additional support.

But the strengthening of the US dollar continues to put downward pressure on the yellow metal. The gold price retreated a day after its biggest rise in a month, and speculation on the timing of a US interest rate hike overshadowed fears of rising geopolitical tensions.

Investors fear that the Federal Reserve may raise interest rates earlier than expected if jobs and wages improve unexpectedly quickly. Higher interest rates could dampen demand for gold, which is seen as a safe haven in times of political and economic instability. When rates go up, investors tend to move from precious metal to assets.

The escalating conflict in Ukraine between opposing forces since the beginning of this year has helped boost demand for gold. Despite a two-day drop, the yellow metal has experienced double-digit gains this year, hitting a 3.5-month high during the turmoil.
Against the backdrop of a political or financial crisis, market participants tend to buy gold.

Precious metals have overtaken other commodities this year with double-digit gains for gold and palladium, and strong profit margins are seen for silver and platinum. "The geopolitical factor is one of the most unpredictable," said Robin Bhar, an analyst at Societe Generale, and "could keep gold above $ 1,300 for a long time."