Gold rallies as safe-haven demand increases on intensifying Middle East conflict
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Gold (XAU/USD) is already up half a percent to trade in the $2,730s on Monday during the European session after rising over 1.0% on Friday. The precious metal is gaining on a mixture of increased safe-haven demand due to the intensifying conflict in the Middle East and moves by the People’s Bank of China (PBoC) to further ease credit conditions by cutting interest rates.
The PBoC’s move to lower its one-year and five-year prime loan borrowing rates not only has the effect of increasing Gold’s attractiveness as a non-interest-paying asset, but also suggests the potential of more demand for Gold from Chinese investors and private buyers, who already make up the largest market for the commodity in the world.
Gold rallies as investor demand for safety increases due to the deepening conflict in the Middle East. Israel has stepped up its bombardment of Beirut by destroying several economic targets in an attempt to wipe out the bank that provides Hezbollah with its funding. The bank, which also serves a large Shiite population of muslims in Lebanon, is the main conduit for donations to Hezbollah, including $50 million a year from Iran, according to Bloomberg News. By destroying it, Israel not only hopes to remove the organization’s principal source of funding but also ferment discord amongst Hezbollah and the Shiite Lebanese community.
Further, Israel’s retaliatory attack on Iran is back on the table after an Iranian drone penetrated Israeli air-defense systems and exploded near the Israeli Prime Minister Benjamin Netanyahu’s private residence. Following the attack, Netanyahu convened several emergency meetings to discuss preparations for Israel’s delayed attack on Iran.
Source: FXstreet
