Gold rises more than 1% as Middle East conflict spurs safe-haven demand

Gold prices rose more than 1% on Monday as the military conflict between Israeli forces and Palestinian Islamist group Hamas raised political uncertainty in the Middle East, prompting safe-haven buying of investments like bullion.

Israel pounded the Palestinian enclave of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history when gunmen from Hamas rampaged through Israeli towns on Saturday.

Gold is used as a safe investment during times of political and financial uncertainty.

Spot gold jumped 1% to $1,850.70 per ounce by 0921 GMT, having hit its highest level in a week. US gold futures climbed 1.1% to $1,865.10.

With investors looking for safe haven assets, gold has benefited at least in the short-term from the spike in geopolitical tensions, said UBS analyst Giovanni Staunovo.

The spiralling violence between Israel and Hamas threatens to start a major new war in the Middle East, sending oil prices higher and boosting the demand for safe-haven assets like U.S. Treasuries, the dollar and the Japanese yen along with gold.

"That said, high US interest rates will remain a headwind for gold. We expect only higher gold prices once the Fed starts to sound more dovish over the course of 2024," added Staunovo.

A hot inflation print later in the week could pave the way for another U.S. interest rate hike this year, dulling gold's appeal. Investors are also focused on the minutes of the U.S. central bank's September meeting due on Wednesday.

"The key question is how lasting these safe-haven flows are if this weekend has brought some tectonic shifts in the geopolitical landscape.

"At least from a commodity perspective, geopolitics tends to be a noise element rather than a lasting and impactful fundamental force," Julius Baer analyst Norbert Rücker said in a note.

Among other metals, spot silver gained 0.4% to $21.68 per ounce, platinum advanced 0.9% to $884.41 and palladium was flat at $1,158.33.