Joint airstrikes by the United States and United Kingdom on Houthi rebels in Yemen boosted safe haven demand, causing gold to rise 0.4 per cent to USD$2,036.71 an ounce on Friday.
The military action was a retaliation to attacks on Red Sea vessels, escalating Middle East conflict since the October Hamas attack on Israel, and potentially raising gold prices if it spreads.
The Houthi rebel group has pledged to persist in targeting Israeli ships and any vessels heading towards the country. Houthi militants conducted an initial response to the US and UK strikes, and the group’s spokesman, Mohammed Abdulsalam, said that they will soon expand their response without providing further details.
However, the precious metal is still on course for a weekly loss due to faster-than-expected US inflation in December, which might postpone the Federal Reserve’s shift towards reducing borrowing costs. Swaps markets indicated a reduced likelihood of rate cuts by March. Gold is generally negatively affected by higher borrowing costs as it does not provide any interest.
“A further uptick in geopolitical risk in the Middle East, plus a slow grind downwards in the US 10-year Treasury real yield below 1.82 per cent, is likely to support a bullish tone in spot gold with a near-term resistance to watch at USD$2,060,” said Kelvin Wong, senior market analyst at Oanda Asia Pacific.
“Spot gold is still well supported at the 50-day moving average that is acting as a key near-term support at USD$2,015.”
In this context, the recent airstrikes on Houthi rebels in Yemen have further highlighted gold’s role as a safe haven asset in times of geopolitical uncertainty.
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Gold has significant downstream effects
Gold has long served as a reliable safe haven asset during periods of economic instability and turbulence. Its appeal lies in its intrinsic value, limited supply, and historical reputation for preserving wealth. When uncertainty looms, investors often flock to gold as a store of value, as it is not subject to the same fluctuations as traditional currencies.
The precious metal tends to perform well when traditional financial markets falter, providing a hedge against inflation, currency devaluation and geopolitical tensions.
Beyond the effects on investors, however, the rise in gold price has other downstream effects on other points of the supply change.
It directly affects the prices at which they sell their gold, influences their profit margins, impacts their ability to secure financing and shapes their production and investment decisions.
For example, mid-tier gold producer Calibre Mining (TSX: CXB) (OTCQX: CXBMF) generated 75,482 ounces over two active operations in Nevada and Nicaragua in Q4 of last year. It registered an increase over its Q3 haul at 73,241 ounces, generating a total revenue of USD$143.9 million at an average realized gold price of USD$1,929 per ounce for that period.
Now that price has climbed due to more investors buying gold due to global instability, companies like Calibre will likely benefit from the greater price.
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