And we’re off: the breakout of precious metals, oil and bitcoin

Written by Ciaran Ryan. Posted in Journalism

The smell of war in the Middle East being the latest trigger. From Moneyweb.

Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East. Image: Michaela Handrek-Rehle, Bloomberg
Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East. Image: Michaela Handrek-Rehle, Bloomberg

Iranian missiles rained down on two US military bases in Iraq last night (Tuesday) in revenge for the assassination by the US of Iran’s most senior military commander last week.

Platinum group metals (PGMs), oil and bitcoin surged on the news, with investors diving for cover and steering clear of risk. Iran’s retaliatory response has panicked investors. Much hinges on US President Donald Trump’s likely response. A tit-for-tat exchange of missiles could quickly escalate out of control and, perhaps, be ruinous for Trump’s re-election chances later this year.

Palladium prices broke $2 000 an ounce in the last two days, continuing a trend that began in 2018. It is a primary ingredient in automotive catalysts, and is in short supply as carmakers shift from diesel to petrol-powered vehicles in which palladium is used.

On Tuesday platinum traded at around $970 per ounce, less than half the palladium prices, but is still up more than 10% from this time a year ago, buoyed by strong tailwinds in precious metals. Investing News reports that platinum demand remains restrained due to soft demand from diesel manufacturers.

The gold price, a perennial hedge against turmoil, is nudging towards $1 600 an ounce, and is now at a seven-year high.

It is already higher than many predicted it would be so early in the new year, boosted by massive central bank buying in China and other emerging economies in recent years.

Read: Gold hits highest since 2013 as Goldman backs bullion in crisis

Brent oil came within a whisker of $70 a barrel yesterday on fears that the world’s oil markets will be disrupted by events in the Middle East. Iran has repeatedly threatened to close off the Strait of Hormuz, through which a third of the world’s sea-borne oil passes, should it be attacked by the US.

Read: Oil shippers raise offers for Middle East route on Gulf risk

“The explosive moves witnessed in oil prices over the past few days highlight how sensitive the commodity is to geopolitical shocks,” says Lukman Otunuga, senior research analyst at FXTM. “Given how this development raises fears of more tensions in the Middle East, oil prices are poised to remain volatile in the near term with all eyes now on President Trump’s reaction and any signs of US retaliation.”

CNBC reported that the Dow Jones Industrial Average plunged 400 points overnight.

However, the carnage appears to have stopped there as Trump reported no US casualties from the Iranian missile attack. Trump has repeatedly pointed to his economic record – measured in lofty share prices – as a measure of his economic success as president. This may curb any appetite for a disproportionate military response against Iran.

“In many regards, the US-Iran situation has now surpassed the US-China trade war as the biggest risk to financial markets. This has been reflected in the current volatility,” says Nigel Green, CEO of financial advisory firm deVere Group. “It’s almost impossible to forecast what the market is going to do in the immediate future – and it is much too early to say what happens next and how investor sentiment will affect markets.”

Palladium prices in USD

Source: ShareMagic

The World Platinum Investment Council expects further gains for the metal, driven by increasing investor interest. The relatively subdued performance in 2019 was the result of a supply overhang, though platinum will continue to benefit from the rising value of palladium.

Bitcoin price in USD

Source: TradingView

Bitcoin, too, demonstrated its status as a digital safe haven as it surged $1 000 to break $8 400 in the last few days.

Gold price in USD

Source: ShareMagic

Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East, with some forecasting a target of $2 000 an ounce in the coming years.

Brent crude oil price in USD

Source: ShareMagic

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.