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Escalation of Violence in Israel Spurs Demand for Safe-Haven Assets

The recent outbreak of violence in Israel has prompted investors to seek refuge in safe-haven assets, with a close eye on the evolving Middle East situation and its potential impact on global geopolitical risks.

Escalation of Violence in Israel Spurs Demand for Safe-Haven Assets

In an unprecedented attack on Saturday, gunmen from the Palestinian group Hamas entered Israel, sparking widespread condemnation from Western countries, led by the United States, who pledged their support for Israel.

As geopolitical tensions rise, investors are turning to assets like gold and the US dollar, along with an increased demand for US Treasuries, which have seen aggressive selling in recent times. These trends became evident as trading commenced in Asia on Monday, with US stock futures declining, while crude oil, gold, and Treasuries experienced increased demand.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, emphasized the importance of including gold in investment portfolios as a hedge against international turmoil. He also predicted that the US dollar would strengthen in response to such global uncertainties, stating, "Anytime there is international turmoil, the dollar strengthens."

In recent weeks, markets have been reacting to expectations of prolonged higher US interest rates, resulting in soaring bond yields and a strengthening US dollar. Stocks, on the other hand, faced losses in the third quarter but showed signs of stabilization in the past week.

Edward Moya, Senior Market Analyst at Oanda in New York, noted, "It seems Wall Street has a new geopolitical risk after Israel declared war with Hamas."

Analysts are closely monitoring the impact on energy prices, with oil prices surging over $4 a barrel in early Asian trading on Monday. The duration of the conflict and its potential to draw in other parties will determine whether this becomes a significant market event.

The Hamas attack received open praise from Iran and its Lebanese allies, Hezbollah. While Iranian oil production has been increasing, Brian Jacobsen, Chief Economist at Annex Wealth Management, highlighted that Iran's celebration of Hamas' actions could undermine any behind-the-scenes progress made in US-Iran relations. He also noted the importance of monitoring Saudi Arabia's reaction, as Washington has been working to normalize ties between Israel and Saudi Arabia.

David Kotok, Chair and Chief Investment Officer at Cumberland Advisors in Sarasota, Florida, expressed concern over the situation, especially as the United States grapples with political dysfunction in Washington. He emphasized the need for US determination and defense capability in handling explosive situations, which may be compromised amid the ongoing turmoil in the nation's capital.



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