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The price of gold could soon break record levels if the Israel-Hamas conflict worsens, the head of the world’s biggest miner of the precious metal has said.
Since Hamas militants launched their assault on Israel on October 7, the spot price of gold has risen sharply as investors flee for the safety of the metal, which is seen as a store of value during times of geopolitical uncertainty.
“There are certainly scenarios that you could see it pushing up through record highs,” said Tom Palmer, chief executive of Newmont Gold, in an interview with the Financial Times. “Unfortunately those scenarios for our society aren’t great.”
Gold reached its nominal all-time high of $2,072 per troy ounce in August 2020 when the US economy was hit hard by Covid-19, causing investors to seek out bullion as the dollar suffered.
Earlier this year, gold came close to breaking that record largely because of the regional banking crisis in the US.
Despite the ferocious rise in interest rates globally — which should depress prices of a non-yielding asset like gold as bonds now have attractive yields — rampant central bank buying of bullion has supported prices. Strong consumer demand in China has also helped support the price of gold.
Furthermore, the metal has rallied almost 10 per cent since the Israel-Hamas conflict broke out last month, settling at around $1,992 a troy ounce on Friday.
Although market veterans warn that safe haven flows for gold on geopolitical events are typically shortlived, traders fret that the conflict could spread, drawing in the wider Arab world.
“The things we’ve seen play out over the last few weeks is one of the factors behind gold enjoying the levels that it’s sitting at now,” said Palmer.
The rise has also come as the US Federal Reserve reaches the end of a campaign of interest rate hikes. Investors’ view that rates would be higher for longer was a key factor that pushed gold prices lower before the Israel-Hamas conflict broke out.
The Fed on Thursday held interest rates steady for the second meeting in a row — though it has kept open the possibility of further tightening.
“When I think about gold price, I think that there’s a lot of fundamentals that are sitting behind the levels that’s been holding for the better part of this year,” said Palmer. “And unfortunately there are events playing around the world that leads to [the] gold price going up.”
His comments come as Newmont closes the largest deal in the industry’s history — the $19bn purchase of Australia’s Newcrest Mining — solidifying the company’s claim as the biggest player in the space.
Newmont approached Newcrest in February, but was rebuffed, prompting it to raise its offer to A$29.4bn. Newcrest agreed to the deal in May.
“This transaction is the largest in the gold industry and among the largest in the mining industry,” Palmer said. “Half of the world’s top gold mines will be in our portfolio.”
The deal gives Newmont a greater foothold in copper production, an essential metal for the energy transition. Gold companies have traditionally traded at a premium to copper producers, but this has been reversed in recent years.
Greater scale will also increase Newmont’s exposure to passive funds who want to allocate gold in their portfolio.
Palmer declined to say whether more deals could follow as Newmont vies with rival Barrick Gold for leadership in the space.
“It’s really important that we roll up our sleeves and safely integrate these five operations into Newmont, deliver on our synergy commitments, and deliver on that portfolio optimisation,” he said.
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