Gold hovers near record highs amid geopolitical tensions; palladium surges on sanction risks

Prices of major precious metals were trading in the green on Thursday as rising geopolitical tensions in the Middle East buoyed safe-haven buying among investors. 

Gold and silver prices were hovering near their recent highs as Israel stepped up its fighting against Iran-backed Hezbollah in Gaza and Lebanon. 

Reports claimed that an Israeli strike hit the Syrian capital of Damascus on Thursday, raising fears about a further escalation of tensions in the region. 

Furthermore, the US reportedly said that for the first time North Korea has sent 3,000 troops to assist Russia in its war against Ukraine. 

Gold underpinned by safe-haven flows

The market is still waiting for Israel’s response to Iran’s attack on October 1. 

Traders believe that Israel’s retaliation against Iran would escalate the ongoing conflict in a dire manner.

This is bullish for gold as investors tend to buy more of the precious metal in time of duress due to its safe-haven value. 

Meanwhile, US Republican nominee Donald Trump seems to be gaining an edge over Vice President Kamala Harris in the upcoming election.

A Trump win could increase safe-haven demand for the yellow metal due to his radical stance on tariffs and other subjects. 

HSBC’s commodity analysts said in a note:

The near-term upward trajectory shows no signs of easing.

Gold prices could go even higher over the near term and into 2025, but the rally may become overstretched and possibly be curbed when the USD and the US yields stay firm. 

Major central banks slash rates

On Wednesday, Bank of Canada slashed its cash rate by 50 basis points.

Lower interest rates bode well for commodities such as bullion and palladium as they are non-yielding metals. 

The market also expects the European Central Bank to cut rates by 50 bps in December, which is supportive for higher commodity prices. 

‘With interest rates set to fall rapidly all over the globe, Gold should benefit given this will increase its attractiveness as a non-interest-paying asset,” Fxstreet.com said in a report. 

Meanwhile, traders expect the US Federal Reserve to cut interest rates by 25 bps at its November policy meeting.

According to CME FedWatch, traders have priced in a 92.9% probability of a 25 bps rate cut in November. 

Silver gaining momentum

Silver prices on COMEX have touched a new 12-year high in the last few sessions, Prices are currently hovering around the $35 per ounce level. 

Zain Vawda, market analyst at OANDA, said in a note:

Silver is trading in the mid 34’s at present with market analysts noting that more gains could be in store.

Silver is not only a precious metal but also an industrial metal.

It is used in a host of electronic products manufactured today, and the rise of technology is only going to increase demand for the commodity. 

“Given the physical shortage already present in silver markets there is a huge possibility that the rally could continue,” Vawda added. 

Looking at the chart below, you can see the huge discrepancy between demand (blue line) and supply (white line) which I expect will underpin prices moving forward.

Palladium prices surge

Palladium futures have rallied sharply over the last two sessions after reports that the US asked G-7 members to consider placing sanctions on Russian palladium and titanium. 

“However, it may be difficult to convince other nations to place sanctions on Russian palladium given its dominance as a global supplier, making up around 40% of global supply” ING Group analysts said in a note. 

At the time of writing, the December palladium contract on New York Mercantile Exchange was at $1,145 .03 per ounce, up 7.5% from the previous close. 

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