Gold and the U.S. dollar experienced a surge in value on Monday as Israel responded to Hamas’s invasion of southern Israel over the weekend. This development had many investors worried about the potential for an escalation of conflict, particularly in one of the most politically sensitive regions of the world.
Gold Futures and the U.S. Dollar Index Rise
Gold futures expiring in December saw a notable increase of 1% to $1,863 per ounce on Comex. In a similar vein, according to FactSet data, the ICE U.S. Dollar Index, which measures the strength of the dollar against a range of currencies, rose by 0.5% to reach 106.52.
Lead investment analyst at XM, Raffi Boyadjian, observed that “gold took the lead as investors flocked to safety.” Notably, the simultaneous rise of both gold and the U.S. dollar is an infrequent occurrence during the past 18 months. Typically, a stronger dollar weighs on the prices of commodities like gold.
Other Havens Rise Alongside the Dollar
Despite the strength of the dollar, other currency-market havens experienced increases as well. The Japanese yen saw a marginal increase against its counterparts, while the Swiss franc rose against its primary rival, the euro.
European Government Bonds Gain Traction
U.S. Treasurys were closed for both Columbus Day and Indigenous Peoples Day holidays on Monday. Consequently, investors turned their attention to high-quality European government bonds, particularly German bunds. The yield on the 10-year German bund, considered the benchmark for European bond markets, declined more than 2 basis points to 2.866% in recent trade.
See: The U.S. stock market remains open for Columbus Day and Indigenous Peoples Day celebrations.
U.S. Stocks Poised for Decline as Crude Oil Prices Rally
U.S. stocks are expected to open lower on Monday, with S&P 500 futures down 0.5% and Dow futures down 0.7% after opening significantly lower overnight. Nasdaq-100 futures are also down 0.7%.
Additionally, crude oil prices have rallied, with West Texas Intermediate crude futures up 4% at $86.21 a barrel. Brent crude futures, the international benchmark, are up 4% at $88 a barrel for contracts expiring later this month.
While the U.S. bond market is closed today, analysts are keeping an eye on the iShares 20 Plus Year Treasury Bond ETF for any signs of safety flows into U.S. government bonds. This could potentially bring down bond yields and ease the pressure on stocks.
Market strategists are now closely monitoring the situation between Israel and Hamas to assess whether the conflict will escalate. There are concerns that Hezbollah, an Iranian proxy in the region, could also engage in attacks against Israel from the north. According to a report in The Wall Street Journal, both Hamas and Hezbollah claim Iran played a role in planning the attack. However, a report from the Times of Israel suggests that there is currently no evidence of Iran’s involvement according to the IDF.
Following Hamas militants’ invasion of southern Israel on Saturday, Israel has vowed to implement a complete siege of the Gaza Strip. The invasion took place as the seven-day festival of Sukkot was ending and resulted in numerous Israeli casualties. In response, Israeli airstrikes in Gaza have already caused further casualties, according to news reports.