Gold Prices Near Record Highs as Its Safe-Haven Appeal Lure Investors Amid Middle East Tensions

Tangible assets like gold appreciate over time because they are limited in supply, have universal demand, and are highly exchangeable worldwide. Gold has been seen as a sign of wealth for many centuries. Its intrinsic store of value and negative correlation to stock markets have made it one of the few asset classes that reached record highs during global recessions in the last half-century. Gold remains a top investor pick for hedging against inflation and protection from the volatility of stocks and fiat currencies like the US dollar.

Optimism Grows Around Rate Cuts On Weak US Jobs Report

Gold prices surged during today's session to $2,470 per ounce, nearing its all-time highs above $2,480 as the alarming US jobs report hints at worrying signs for the US economy. The US economy added only 114,000 jobs in July, down from 179,000 in June. The markets were expecting Nonfarm Payrolls to rise by 175,000. While the unemployment rate jumped to 4.3% in July despite the market expecting it to remain steady at 4.1%, the average wage growth measure fell to 3.6% from 3.8% in June.

Meanwhile, global stocks dropped markedly today, with large-cap tech firms bearing most of the brunt due to the sudden weakness in the US jobs report. A softer-than-expected US manufacturing activity survey, a slump in the overvalued US tech sector amid lacklustre earnings, and escalating Middle East tensions fueled the selldown. Furthermore, weak employment, wage growth numbers, and an uptick in the unemployment rate will likely solidify the US Federal Reserve's stance on September rate cuts. The 10-year US Treasury yields also fell to a six-month low of 3.79%, while two-year yields fell below 4%. Reduced yields on interest-bearing instruments lower the opportunity cost of holding non-yielding assets like gold.

Stephen Brown, deputy chief North America economist at Capital Economics, told The Guardian: "The sharp slowdown in payrolls in July and sharper rise in the unemployment rate makes a September interest rate cut inevitable and will increase speculation that the Fed will kick off its loosening cycle with a 50 bp cut or even an intra-meeting move." Meanwhile, Neil Birrell, chief investment officer at Premier Miton Investors, said the weak data "will cause more angst, and concerns over the health of the economy will increase," adding that his firm has shifted its outlook of a robust economy to a faltering one.

Elsewhere, tensions in the Middle East are escalating fast as Iran pledged to avenge the attack on Hamas leader Ismail Haniyeh by an Israeli air strike. The situation has heightened the scope for a full-fledged war between multiple West Asia nations. Further worsening of geopolitical relationships worldwide could disrupt supply chains essential to industries like tech and automotive. This development could, in turn, trigger an impending price correction phase, especially for highly overvalued companies that have driven the years-long rally since 2023.

What Is The Best Way To Invest In Gold?

It mainly depends on the investor's preferences. Since gold is more easily accessible than other commodities, one can buy the physical metal in bar or coin form from a precious metals dealer. However, physical gold has hassles like safety, transaction fees, custodian costs, and insurance. Investors can purchase gold exchange-traded fund (ETF) shares via their brokerage accounts to avoid these hurdles. These ETFs copy the movements of gold prices, offer high liquidity, and charge low fees.

Many investors also invest in gold mining stocks. However, they don't replicate gold movements since mining businesses are affected by several environmental and financial metrics. Several gold mines and companies are in or close to politically active regions. However, closed-end trust funds like the Sprott Physical Gold Trust offer exposure to gold bullion without handling and storage issues or regulatory hurdles related to mining companies. Investors in these trusts purchase gold secured in vaults, which allow redemption in physical units during times of market crisis. This feature is seldom available with gold ETFs.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.