Geopolitics has always been a driving force in the Middle East, and it remains particularly true for precious metals markets. When tensions grow and conflict arise, precious metals of gold, silver, and, at times, even platinum become safe haven assets to which investors tend. This blog examines the quantitative impact on precious metals prices from recent crises in the Middle East.
Understanding Precious Metals as Safe Havens
Traditionally, trading in precious metals such as gold and silver typically receives a boost whenever there is a concern in the global economy or an increase in geopolitical risk. Due to their nature of being valuable and liquid, their investment is suitable for investors who want protection against inflation, currency decline, or instability of the stock market, as these metals act as an appropriate safe-haven investment as consumers’ confidence in the conventional financial markets dips.
Recent Crises in the Middle East
In 2023 and 2024, several key events in the Middle East have escalated tensions:
Israel-Hamas war:
In October 2023, large-scale violence and instability reoccurred in the region where the renewed war between Israel and Hamas erupted. Israeli military actions in Gaza and southern Lebanon picked up again in September 2024, but fears of a more serious confrontation were growing. It created a demand for gold and silver as safe-haven assets
Iran's nuclear program:
Iran's longstanding nuclear activities and ambitions have made Western countries increasingly concerned. The uncertainty in past actions of military or sanctions can mobilize investors toward precious metals
Oil supply disruptions:
Oil production is critical to the Middle East. The war-driven disruptions can have a knock-on effect and cause spikes in oil prices, sometimes mutually correlated with the price of the other precious metals, as investors seek stability
Quantitative Analysis of Precious Metals Prices
To understand the impact of these conflicts on precious metals prices, we can analyze historical price movements alongside significant geopolitical events.
Gold prices
Gold is often the first metal that comes to mind when discussing safe havens. During the past year, gold prices have shown a marked increase during periods of heightened tension:
- Pre-crisis levels: In early 2023, gold was trading around US$1,850 per ounce
- Post-conflict surge: Gold prices rose to US$2,050 per ounce following the breakout of hostilities in October 2023 to nearly that price by November 2023. That’s an over 10% increase in one month
- Current trends: As of November 2024, prices have leveled off around US$2,100 per ounce as the result of continuing geopolitical uncertainty and inflationary pressures broadly across the world
Silver prices
Silver also serves as a safe haven but tends to be more volatile than gold:
- Initial stability: At the start of 2023, Silver was priced around US$24 per ounce
- Price spike: Similar to gold, silver saw a significant increase following the Israel-Hamas war, reaching approximately US$28 per ounce by late November 2023
- Current valuation: As of November 2024, silver is trading at approximately US$29 per ounce. This reflects both its role as an industrial metal and its status as a precious metal during crises
Platinum and Palladium prices
The prices of platinum and palladium have become increasingly sensitive to disruptions in industrial demand, particularly from the automotive industry:
- Industrial demand sensitivity: Platinum and palladium prices are mostly tied to industrial demand, and that demand is closely tied to automotive — the main use of these metals is in catalytic converters. Supply chains have been disrupted by recent geopolitical tensions, and price hikes have ensued. For example, platinum price has risen to around US$997.30 per ounce on the back of these events. Earlier in 2023, platinum prices were approximately US$981 per ounce in June
- Price fluctuations and speculation: Prices of both metals are highly volatile and subject to large fluctuations due to market speculations and broader economic factors. Currently, palladium is being traded at around US$1,010.35 per ounce, and it is expected to see a price rise on account of speculative trading coalescing with market volatility that continued to be driven by geopolitical issues
- Substitution trends: In recent years, automakers’ growing spend on palladium has led to the trend of switching to platinum for use in autocatalyst. This will further strengthen platinum demand as stricter emissions regulations get enforced in the near future and is expected to affect the pricing dynamics of both metals in the near term
Correlation Between Geopolitical Events and Precious Metals Prices
The correlation between geopolitical events and precious metal prices can be illustrated through data analysis:
| Event | Date | Gold Price (USUS$/oz) | Silver Price (USUS$/oz) |
| Pre-Israel-Hamas conflict | September 2023 | US$1,850 | US$24 |
| Outbreak of conflict | October 2023 | US$1,900 | US$25 |
| Post-conflict surge | November 2023 | US$2,050 | US$28 |
| Ongoing tensions | November 2024 | US$2,100 | US$29 |
Factors Driving Precious Metal Prices During Crises
Several factors influence the price dynamics of precious metals during geopolitical crises:
Fear and uncertainty drive demand for safe-haven assets. As news breaks regarding conflicts or potential military actions, investors start stocking up gold and silver
Hedge against inflation tends to be a reputation precious metals are known for. Investors turn to these assets due to supply chain disruptions exacerbated by conflicts that are driving rising consumer prices globally
Geopolitical instability can lead to fluctuations in major currencies like the US dollar. A weakening dollar typically boosts gold prices as it becomes cheaper for foreign investors
Traders often speculate on future price movements based on current events. Increased trading volume during crises can lead to more pronounced price movements
Long-Term Outlook for Precious Metals Prices
As we look forward to 2024 and beyond, several scenarios could impact precious metals prices. Some of these are listed below:
- Continued geopolitical tensions: If conflicts persist or escalate further in the Middle East, we may see sustained demand for precious metals as safe havens
- Global economic recovery: Conversely, if global economies stabilize and recover from recent downturns, demand for precious metals may decrease as investors shift back into equities or other growth assets
- Central Bank policies: Central banks worldwide are adjusting their monetary policies in response to inflationary pressures. Any shift toward tighter monetary policy could negatively impact gold and silver prices
Read more: Best Procurement Practices for the Mining Industry
Conclusion
Precious metals prices are greatly affected by crises in the Middle East, as are many others. If you look at historical data, you can exactly define when geopolitical tensions affect the price of gold and silver. Amid uncertainty and volatility, global investors are determined to make sense of these dynamics for informed investment decisions.
As it stands, those who are investing in precious metals or would like to diversify with a tactical hedge against the potential of nascent market downtrends should have their eyes on if and how those events will play out in the Middle East. Investors can position themselves to capitalize on the opportunities brought on by these ever-evolving crises by analyzing the trends with past data, not just current events.
