As investors closely monitor events in the Middle East to assess geopolitical risk to markets, the violence in Israel will probably cause a shift into safe haven assets.
On Saturday, armed members of the Palestinian organization Hamas launched an unprecedented attack inside Israel. The United States and other Western nations condemned the attack and vowed to assist Israel.
According to economists, increasing geopolitical risk might lead to investments in assets like gold and the dollar as well as increased demand for U.S. Treasuries, which have been sharply discounted.
“This is a prime illustration of the need for gold in portfolios. According to Peter Cardillo, chief market economist at Spartan Capital Securities, the dollar will also gain from it since it is the ideal hedge against global unrest.
“Anytime there is international turmoil, the dollar strengthens,” Cardillo stated.
Recently, the belief that U.S. interest rates will remain
higher for longer has caused markets to react. While the U.S. currency has been on a winning streak, bond yields have skyrocketed. In the meantime, stock prices suffered significant losses over the third quarter before stabilizing last week.
Brian Jacobsen, chief economist at Annexe Wealth Management, said of the situation in Israel: “Whether this is a massive market moment or not depends on how long it lasts and whether others are sucked into the conflict.” Despite Iran’s increasing supply, Jacobsen questioned the extent to which it would affect oil prices.
Iran and Hezbollah, Iran’s allies in Lebanon openly welcomed the Hamas strike.
“Iranian oil production has been increasing, but any progress they’ve been making behind the scenes with the U.S. will be dramatically undermined by Iran’s celebrating Hamas’s actions,” said Jacobsen. He added that “the possible output loss matters, but it won’t be earth-shattering.”
To see how Saudi Arabia responds, according to Jacobsen, is of utmost importance. In order to normalize relations between Israel and Saudi Arabia, Washington has been attempting to reach an agreement.
According to David Kotok, chair and chief investment officer at Cumberland Advisors in Sarasota, Florida, the scenario is worrying since Washington’s dysfunction weakens the United States. A budget confrontation is approaching, and Republicans are searching for a replacement for outgoing House Speaker Kevin McCarthy.
