Gold’s current situation

Gold prices continued its rally as Middle East tensions spurred demand, lifted by the bul-lion’s safe-haven appeal. Gold prices notched another record close Monday, with the most-active June contract for gold futures trading 0.37% higher to settle at $2,383 per ounce, and some say there is more room to run. “The recent gold rally has been aided by geopolitical heat and is coinciding with record equity index levels.”

Demand for the safe-haven asset grew amid escalating tensions in the Middle East after Iran fired over 300 drones and missiles directly at Israel, most of which were intercepted, thanks to Israel’s Iron Dome air defence system.

Market watchers are closely monitoring a potential retaliation by the Jewish state, which has vowed to “exact a price” from Iran. A significant retaliation could lead to a wider conflict, which would consequently trigger renewed buying of gold, as well as a rally in oil prices and strengthening of the U.S. dollar. Gold, which re-tains its value as a hedge against inflation, tends to perform well in periods of economic un-certainty when investors move away from the riskier assets such as equities.

Bullion prices hit an all-time high of $2,448.80 per ounce intraday last Friday. Gold prices usually have an inverse relationship with interest rates. As interest rates fall, gold becomes more appealing compared with fixed income assets such as bonds, which would yield weaker returns. Hotter than expected inflation in March pushed back market expectations of a rate cut to September, and the expectation is now for two rate reductions instead of three.

In spite of that, analysts remain bullish on the yellow metal’s outlook, boosted by continued physical demand as well as its appeal as a geopolitical hedge. On Friday, Goldman Sachs referred to the gold market as an “unshakeable bull market” and revised upward its price target for the yellow metal from $2,300 per ounce to $2,700 by the end of the year.