Gold becoming best hedge against geopolitical risks, experts contend

Investors in gold should increase their holdings of the precious metal to beat multiple uncertainties, experts said on Monday, even as prices have turned volatile recently due to escalated geopolitical tensions and a muted global economic outlook.

Gold prices rallied on Monday as demand for safe-haven assets jumped worldwide after a surprise attack on Israel by militant group Hamas on Saturday.

Prices of COMEX gold futures in New York opened nearly 1 percent higher on Monday at $1,863.50 per ounce and stayed at about $1,865 in the following trading hours.

Spot gold prices in London also jumped over 1.3 percent to $1,856.95 per ounce shortly after trading began on Monday.

The "renewed geopolitical conflict in the Middle East rattled investors' nerves and boosted safe havens such as gold", Dhwani Mehta, a senior analyst and manager of the Asian session at financial information provider FXStreet, said in an article on Monday.

Going forward, all eyes will be on the Middle East conflict, which could impact the US dollar and gold prices. But further upside in gold rates could be capped should there be increased demand for the greenback as a safe-haven asset, she wrote.

Prior to Monday's rally, bullion prices had slid for nine consecutive trading sessions since Sept 25, the longest period of continued declines this year. Spot gold prices had fallen to $1,812.95 per ounce last Thursday, the lowest level in seven months.

Analysts from China Development Bank Securities said strong jobs data from the United States indicate that the spikes in US interest rates may not end soon. This will further push up yields on the 10-year US Treasury bond, a major reason for the previous plunge in gold prices.

However, investors should still buy gold at current levels even if bond yields rise further, said Edward Moya, senior market analyst at financial services provider Oanda. In the context of increased economic risks, current gold prices may become the focus of investment, he added.

Daniel Pavilonis, a senior market strategist at RJO Futures, said gold prices may have already touched bottom after the previous slide. Weakening signs of US inflation may help bullion prices rebound further within the week, he said.

Volatility in gold prices has not affected central banks' interest in the precious metal. According to the World Gold Council, central banks globally added a net 77 metric tons to their gold reserves in August, a third straight month of net purchases.

Over the past three months ended August, gold buying by central banks totaled a net 219 tons.

China's official gold reserves increased by 840,000 ounces from a month earlier to 70.46 million ounces by the end of September, the State Administration of Foreign Exchange said on Saturday. It was the 11th consecutive month of increase in its gold holdings.

The precious metal accounts for 4 percent of the total asset value of China's official reserves.

Zhou Maohua, an analyst at China Everbright Bank, said increased gold reserves in China are in line with the global trends, as central banks are aiming to optimize and diversify the asset structure of official reserves, improve their stability, and enhance the ability to resist external risks.

Political and economic uncertainties have increased across the world, including the risks of rising public debt in the US and other economies, geopolitical conflicts, the "weaponization" of the US dollar and some international financial infrastructure, and declining US dollar credit. The increase in gold reserves will help diversify risks, improve the stability of official reserve assets, and enhance the resilience of the financial system, Zhou said.

In light of the relatively lower deposit rates and the sluggish property market in China, the supply of quality investment targets is limited. Holding gold in the long run, particularly gold-linked investment products and gold exchange-traded funds, will be a good investment option, said Xue Hongyan, deputy head of Star Atlas Institute of Finance.