Investors should consider buying gold as geopolitical tensions in the Middle East are likely to escalate in the coming months, according to a recent note from Alpine Macro.
The research firm warns that Iran, feeling pressured to reestablish deterrence, may soon launch limited attacks on Israel, either directly or through proxies.
They note that while Western, Arab, and Russian influences are currently holding Iran back, the situation remains volatile.
Escalation of Tensions in the Middle East
Alpine Macro suggests that Israel’s threat to retaliate disproportionately, potentially targeting Iran’s nuclear facilities or oil infrastructure, could be a significant factor in deterring Iran from a full-scale assault.
However, the firm believes that some form of retaliation from Iran is likely.
They also state that there’s a “tail risk” that Iran might take an unexpected action, such as declaring itself a nuclear power, which would dramatically alter the regional balance of power and introduce further risks.
Impact on Energy Prices and Assets
The note emphasizes that the Middle East conflict has a “strong chance of escalating in the next 6-9 months,” which would likely boost energy prices and increase the value of out-of-region energy assets.
Given these uncertainties, Alpine Macro’s Chief Asset Allocation Strategist strongly recommends maintaining exposure to gold.
Gold as a Safe-Haven Asset
He argues that gold remains the best hedge against geopolitical risks, citing historical data that shows gold typically outperforms other safe-haven assets in the months following major geopolitical events.
In light of the increasing geopolitical risks, Alpine Macro advises investors to maintain or increase their positions in gold as a protective measure against potential volatility.
Additional Insight: Investing in gold during times of geopolitical uncertainty is a common strategy adopted by investors seeking to protect their portfolios from market volatility and geopolitical risks. Gold has historically been considered a safe-haven asset, often seeing increased demand during periods of geopolitical instability. This is because gold is perceived as a store of value and a hedge against currency depreciation, making it an attractive investment option for risk-averse investors looking to diversify their portfolios.
