The tensions in the Middle East have generated some interesting patterns in crude and gold prices. Oil has been more volatile, as might be expected given that it is more directly impacted if war breaks out along the Strait of Hormuz. But gold prices are also sensitive to the uncertainty of such an eventuality.
While both commodities have been elevated, their price fluctuations have responded to rumours rather than pricing in a particular outcome. This is particularly notable in Brent, which shot up above $72 per barrel on Thursday on reports that US-Iran talks ended without a deal. Then the price collapsed back to $70.50 when the representative said there had been progress in the talks, and they would continue next week. Gold also fluctuated, but continued to trend in the green, suggesting that investors are more inclined to stay cautious amid the uncertainty. Gold is expected to close out February with the sevent consecutive month of gains, up over 20% since the start of the year.
The Crucial Weekend
The position of commodities could be crucial going into the weekend. That’s because many analysts believe that if the US were to strike Iran, it would happen late Friday or Saturday, given past actions. This would give the market a day or two to digest the news. Additionally, it’s widely expected that any military action would seek to pre-empt expectations, aiming for the element of surprise. That could even mean the key players downplay the possibility of airstrikes on Iran as a distraction. US President Donald Trump has been notably quiet about the situation in the Middle East after making it a part of his State of the Union speech on Tuesday.
The US’s largest aircraft carrier, the USS Gerald Ford, is set to reach its station off the coast of Israel on Friday. That would give Trump additional military options going into the weekend, and he was reportedly briefed on those options on Thursday. Despite the uncertainty heading into the weekend, crude prices are not significantly higher, suggesting traders largely expect nothing to happen. Analysts believe that if there is a conflict, crude prices could rise to as high as $110 per barrel if there is a substantial disruption of the Strait of Hormuz. Iran produces around 3.3 million barrels per day.
Rising Tensions and Production
Just as all eyes are focused on one part of the Middle East, tensions explode in another. Pakistan launched airstrikes across its neighbour Afghanistan, including in the capital Kabul, on Thursday. Taliban fighters responded by attacking into Pakistan, with both sides claiming over a hundred casualties. Tensions between the countries had been simmering for a while, but Pakistan saying there is “open war” caught the headlines. Neither country is a major oil producer, so it’s understandable that it wouldn’t have a major impact on crude oil prices. However, combined with the US military buildup in the region, this creates the impression of a powder keg and could elevate gold prices.
Meanwhile, OPEC+ is set to meet over the weekend to discuss April production levels. There have been rumours that the cartel will likely increase production ahead of peak consumption during the summer. This could potentially drive down the price of crude as more production comes online, even as many analysts fret that there is already a supply glut. Geopolitical tensions are keeping crude prices up, which motivates producers to increase supply. But those tensions could be resolved fairly quickly (if, say, the US and Iran reach a deal next week), and that could cause the price of crude to crater.
![Credit Card 160×600 [EN]](https://assets.iorbex.com/blog/wp-content/uploads/2023/06/13144507/Blog-Banner_EN-Banner_160X600X2.webp)
