After the first concrete ceasefire plan since the start of the Iran conflict, gold and oil are moving in opposite directions. However, there is still a lot of uncertainty, and the war’s effects on prices and currencies have made things more difficult for the yellow metal, according to commodity strategists at ING.
In a study released on Wednesday, commodities strategists Warren Patterson and Ewa Manthey said that gold was rising as the price of energy fell.
“Oil prices dropped sharply after news of new efforts to end the fighting. Brent fell as much as 7% toward $97/bbl before cutting its losses, while WTI traded near $89/bbl,” they said. “Markets reacted to reports that the US has written a 15-point plan to end the conflict and sent it to Iran through Pakistan, though details are still not clear.”
Even though people were relieved at first, they said that market instability is still high and there are other signs of things getting worse. They said, “Tehran fired a new wave of missiles at Israel and made it clear that it wasn’t willing to compromise. Iran also said again that foreign ships can only pass through the Strait of Hormuz if they follow Tehran’s rules and don’t support acts of aggression.” “Earlier, the US ordered the sending of about 2,000 troops from the 82nd Airborne Division to the area, which shows how dangerous things could get worse.”
The strategists also said, “Overall, volatility remains high and a geopolitical risk premium persists.” “Ongoing tensions keep prices high, raise concerns about inflation, and make people more likely to think that policymakers may delay loosening or even tightening monetary policy.”
Also, gold prices are rising above $4,600 an ounce early Wednesday morning, making their gains last for a second straight trading session after ending a nine-day losing run. “US President Trump’s comments that Iran had made a goodwill gesture related to energy flows through the Strait of Hormuz and diplomatic signals from China encouraging negotiations” helped, they said. “Lowering oil prices and a weaker US dollar helped.”
ING thinks that gold will continue to be very affected by changes in the value of the dollar, predictions about future Fed rates, and events in world politics. “Risks are still high because Iran still controls the Strait of Hormuz and Israel is still attacking Iranian assets,” they said. “The US decision to send an extra 2,000 troops from the 82nd Airborne Division made things even more tense in the region.”
“There are also early signs that some central banks, especially those that have to deal with higher energy import costs, may use their gold reserves to help stabilize currencies,” they said. “For example, Turkey’s central bank is planning steps to keep the lira from falling too much because of the war.”
Gold hit a session high of $4,602.64 overnight, but it has since retested near-term support around $4,530 an ounce and is still trading in the upper half of its daily range.
