With the escalating tensions in the Middle East, particularly between Israel and Iran, the potential for a wider regional war is a cause for concern. Investors are being advised to consider adding gold and oil to their portfolios as a hedge against the uncertainty that may arise. According to UBS analysts led by Tilmann Kolb, a wider regional conflict could disrupt oil supplies, leading to quick price spikes. This highlights the importance of diversifying investments to include assets that can withstand market volatility.
Risk of Military Conflict
The recent assassination of Hamas political leader Ismail Haniyeh in Tehran has put Israel and Iran on the brink of a direct conflict. Iran has vowed retaliation, with reports indicating that the Supreme Leader Ayatollah Ali Khamenei has ordered a strike on Israel. This comes after a rocket launched from Lebanon resulted in the deaths of 12 children in the Israeli-occupied Golan Heights. Israel, attributing the attack to Iran-backed Hezbollah, responded with a strike in Beirut that killed one of the militia’s senior commanders, Fuad Shukr. The UBS analysts believe that while no one has a clear interest in expanding the war, the risk of retaliation or miscalculations sparking a larger military conflict remains high.
Role of Gold as a Safe Haven Asset
In times of geopolitical uncertainty and market volatility, gold has historically served as a safe haven asset. Since the Beirut strike, gold prices have risen, demonstrating its role as a risk hedge. The UBS analysts also point to high demand from banks and the anticipated increase in demand following potential rate cuts by the Federal Reserve as factors that could further drive up gold prices. As a more conservative asset, gold is seen as a reliable option for investors looking to protect their portfolios in turbulent times.
Investors are urged to carefully assess the current geopolitical situation in the Middle East and consider the potential impact on global markets. Adding gold and oil to their investment strategy can help mitigate risks and provide a level of security against unforeseen events. By diversifying their portfolios with assets that have historically proven to perform well in times of crisis, investors can better safeguard their investments and navigate uncertain economic and political landscapes.