Gold capitalises on safe haven moves

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Events near Iran weigh on risk appetite

We're seeing markets broadly in the red around the globe on Friday with traders continuing to respond to developments in Gulf of Oman, as the US doesn't hesitate to point the finger of blame at Iran.

Equities have been on a good run the last couple of weeks, ever since the Fed assured investors that it wasn't just going to sit back and watch the economy slow before its eyes. The rally has slowed paused this week, with the latest heightened geopolitical risks naturally weighing on risk appetite, albeit without dragging too heavily on stocks.

Oil remains elevated but traders not getting carried away

Oil prices remain elevated on Friday, with tensions heightening after the US blamed Iran for the attack on two ships in the Gulf of Oman. It may not come as a surprise that the Trump administration has directed the blame Iran's way given that it was also blamed for sabotaging ships in the region last month, not to mention that it took place off its coast and the country has a motive to do so.

That said, occurring at a time when Shinzo Abe was in Iran attempting to create some form of dialogue between the two is hardly ideal. The Trump administration's decision to withdraw from the nuclear agreement and re-imposed sanctions has caused huge economic distress for Iran and threatened to kill the deal altogether, despite other nations remaining committed to it. Unfortunately, US sanctions make their ability to do business with Iran very difficult so their participation is in many ways symbolic.

Oil prices may have spiked following the attack but they haven't risen too much considering the risk that an escalation poses, with around 20% of global oil supply passing through the Strait of Hormuz. Perhaps this is a sign of how pressured oil prices are to the downside at the moment, with the US pumping at record levels and the global economy slowing. Still, it may be enough in the near term to keep WTI above $50 and further complicate the OPEC+ meeting which is expected to take place early next month.

Gold capitalises on safe haven moves

Gold hasn't hesitated to capitalise on the risk averse markets, soaring through $1,350 today to hit a 14-month high. The yellow metal has run straight into resistance again though around $1,360, which coincides with the peaks we saw throughout 2017 and 2018. Even above here we could see further resistance around $1,370, around the 2016 peak. Above here though, we could see gold gather further momentum.

I'm not convinced the risk aversion will hold though so this may rely on the dollar coming under further pressure, which wouldn't come as a surprise after it fell to its lowest level since March last week. We've seen a recovery since then but that already looks to be running out of steam, which could see its resolve tested.