Geopolitical Unrest in Israel Spurs Surge in Safe-Haven Investments

08.10.2023 posted by Admin

Middle East Violence Spurs Safe-Haven Asset Surge

The recent violence in Israel is causing investors to turn to safe-haven assets as they closely monitor developments in the Middle East to assess the geopolitical risks to financial markets.

Over the weekend, gunmen affiliated with the Palestinian group Hamas carried out an unprecedented attack inside Israel. Leading Western nations, including the United States, have strongly condemned the attack and pledged their support to Israel.

The increasing geopolitical instability has led to increased interest in assets like gold and the U.S. dollar. There is also a growing demand for U.S. Treasuries, which have recently seen aggressive selling, according to analysts.

Experts like Peter Cardillo, the Chief Market Economist at Spartan Capital Securities, emphasize the importance of including gold in investment portfolios as it serves as a reliable hedge during times of international turmoil. Cardillo also predicts that the U.S. dollar will benefit from the ongoing instability, as it tends to strengthen during such periods.

The financial markets have been reacting to the expectation that U.S. interest rates will remain elevated for an extended period. This has led to a surge in bond yields and a strong performance of the U.S. dollar. Despite these challenges, stock markets have stabilized in the past week following sharp losses in the third quarter.

Brian Jacobsen, Chief Economist at Annex Wealth Management, assesses the situation in Israel and questions its potential impact on oil prices, despite Iran's increased oil production. He emphasizes that the duration of the conflict and whether other nations get involved will determine whether this becomes a major market event.

Iran and Hezbollah have openly praised the Hamas attack, raising concerns about the broader geopolitical implications. Jacobsen notes that while Iran's oil production is on the rise, its celebration of Hamas's actions could undermine any progress it has made in behind-the-scenes negotiations with the U.S. However, he believes that the potential loss in oil output is significant but not catastrophic.

The situation in Israel also has implications for Saudi Arabia, and analysts are closely monitoring how the Saudi government responds. The U.S. has been working on a deal to normalize relations between Israel and Saudi Arabia, making Saudi Arabia's reaction crucial in the current context.

David Kotok, Chair and Chief Investment Officer at Cumberland Advisors in Sarasota, Florida, expresses concern about the situation, particularly because it comes at a time when the United States is grappling with political dysfunction. With Republicans searching for a new leader in the House of Representatives and a looming budget showdown, Kotok worries about the U.S.'s ability to respond effectively to potentially explosive situations.
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