Gold Fails to Rally Amid Middle East Tensions, But China Sees Opportunity

The Strait of Hormuz, a narrow waterway in the Middle East, has seen tanker traffic plummet to near zero due to ongoing conflict. This has led to a surge in oil prices, with Brent crude crossing above $100 a barrel.

Despite the escalation of tensions and potential impact on global trade, gold prices have remained relatively stable, hovering around $4,000 an ounce. This is unusual, as gold is often seen as a safe-haven asset during times of conflict.

The reason for this anomaly lies in the rise of oil prices, which has pushed up inflation and interest rate expectations. As a result, gold prices have been pressured by higher yields on bonds.

However, China's central bank seems to be taking advantage of the situation. It purchased 15 tonnes of gold in June, its largest single-month purchase since October 2023, bringing official holdings to 2,346 tonnes. This marks the country's 20th consecutive month of accumulation, the longest streak on record.

Legendary hedge fund manager John Paulson predicts that gold will continue to rally as people lose faith in paper currencies and turn to gold as an alternative. He advises investors to maintain exposure to gold miners, which have been printing cash at $4,000 gold due to their high margins.