Since the conflict in Gaza started on 7 October gold and oil prices have both enjoyed high single-digit gains.

It’s tough for stocks when gold and oil are moving in concert, as is demonstrated by the commensurate 4% fall in the MSCI World in the same period. This makes sense. Markets struggle with uncertainty and when the two commodities are moving higher at the same time it is typically for geopolitical reasons.

The precious metal has even reclaimed the $2,000 per ounce mantle it surrendered in early summer. Prior to October, gold had struggled thanks to a rise in ‘real’ or inflation-adjusted interest rates. When the yields available on low-risk asset classes like government debt are higher, assets like gold, which offer no income, lose some of their appeal. However, gold also has a safe-haven role.

Liberum comments: ‘We always encourage our investors to hold at least some gold in their portfolios throughout a cycle. For while conflict is rare, it is also unpredictable, and poses a substantial risk to financial market stability when it occurs. Even in the 21st century, gold can help protect a modern investor’s capital during these events.’

The broker has analysed the impact of other global conflicts and major market shocks on gold – this analysis is shown in the table. 

On this occasion Liberum says there is little doubt that the war in Gaza is the cause.

For now, the increase in energy prices has been reasonably contained despite the escalating tensions. However, if further parties are drawn in, that could change.

Helpfully, the World Bank has outlined three different scenarios and the likely impact on oil prices, which it warns could spike to more than $150 per barrel in the most extreme of this trio.

Its ‘small disruption’ scenario, in which global oil supply falls by 500,000 to two million bopd (barrels of oil per day), equivalent to the impact of the Libyan civil war in 2011, would see prices rise to a range of $93 to $102 per barrel.

The ‘medium disruption’ scenario – on a par with the 2003 Iraq War – with global oil supply falling between three million to five million bopd, could take crude to between $109 and $121, while a ‘large’ disruption scenario comparable to actions taken during the 1973 Yom Kippur war, with supply falling by six to eight million bopd, could drive oil all the way to between $140 per $157 per barrel.

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