U.S. and Iran’s Trade Threatens Oil and Gold Prices

On Monday, due to heightened Middle East tensions, Asian shares fell after the 18-month top. As investors move towards more gold investments, oil jumped to four-month peaks hitting a near seven-year high.

In jittery trade, spot gold XAU= surged 1.5% to $1,579.55 per ounce and to reach its highest since April 2013. Oil prices in the region also surged due to fears of conflict that could lead to disrupting global supplies. Brent crude LCOc1 futures rose $1.46 to $70.06 a barrel and U.S. crude CLc1 climbed $1.17 to $64.22.

Shane Oliver, chief economist at AMP Capital, said after the direct attack of Iran, there are clear signals that the risks have further escalated posing a threat of the rapid increment in oil prices. However, historically, in order to pose a threat to global growth, the oil prices need to double and we are still far from that.

Asia-Pacific shares outside Japan, MSCI’s broadest index MIAPJ0000PUS slipped 0.7%.

E-Mini futures for the S&P 500 ESc1 fell 0.5%, while Japan’s Nikkei slide 2%. The Australian shares were off 0.4% as the blue-chip CSI300 index off a shade Chinese shares opened in red too.

According to Ray Attrill, head FX strategy at National Australia Bank, as the geopolitical tensions seem to remain escalated in the coming days, markets are on the defensive by lending support to oil prices and keeping risk assets.

On Friday, after having fallen 10 basis points, Sovereign bonds safety bid benefited them with yields on 10-year Treasuries US10YT=RR down at 1.769%. Owing to the courtesy of Japan’s massive foreign assets holdings, Japanese yen remained in favor of safe harbor. Investors pushed the yen higher due to their assumption that the Japanese funds would repatriate their money during a true global crisis.

 

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