Middle East tensions drive oil and gold higher Middle East tensions drive oil and gold higher Middle East tensions drive oil and gold higher

Middle East tensions drive oil and gold higher

Ole Hansen

Head of Commodity Strategy

Summary:  The month long rally in gold and not least oil has extended further today following the U.S. strike against an Iranian general in Baghdad. Middle East tensions once again raise risk of supply disruptions while investors take shelter in gold as stocks falter and inflationary pressures emerge

The ongoing tensions between the U.S. and Iran hit a new high today after a U.S. pre-dawn raid near Baghdad airport killed General Qassem Soleimani, the head of Iran's elite Islamic Revolutionary Guard Corps' Quds Force, and architect of its regional security apparatus. The raid also killed an Iraqi militia commander who had been accused by the U.S. of orchestrating the end of December attack on the U.S. embassy complex in Baghdad.

These developments signal a worrying escalation in the Middle East with the markets now awaiting the response from Iran. Decades of open and covert hostility between the U.S. supported by Saudi Arabia and Israel and Iran often finding support from Russia and China has now reached a very dangerous stage. There are plenty of news available about these latest events: Reuters: Soleimani was Iran's celebrity soldier, spearhead in Middle East Bloomberg: What to Know About the Escalating U.S.-Iran Conflict Al Jazeera: Iran's Qassem Soleimani killed in US air raid at Baghdad airport

The market reaction has been swift with Brent crude oil reaching $69.15/b, the highest level since the September Aramco attacks in Saudi Arabia. Gold’s safe-haven credentials meanwhile have given a renewed boost and it has built further on the late December rally to now stand less than 1% from the September peak at $1557/oz.

Brent crude oil reached but failed to breach the downtrend from the April 2019 peak overnight. Above that level the next resistance will be the September 16 peak which occurred after the attack on Aramco facilities within Saudi Arabia. An attack that Iran was blamed to have carried out.

Source: Saxo Bank

The combination of central bank stimulus and rising food and energy prices will only add to our view that inflation or the risk of rising inflation will become a theme in 2020. Gold’s behavior during the past few months support this view. Despite seeing record highs in stocks and increased risk appetite gold only managed a weak correction from the September peak before resuming its rally during December.

The UN FAO’s basket of 55 key food commodities rose 10% y/y in November with the next update for December due next week. With crude oil currently up by more than 30% y/y the outlook for rising inflation through higher input costs only adds to the outlook for higher gold prices.

Gold’s correction phase following the surge to $1557/oz last September only managed to yield a weak 38.2% correction. Especially the performance during December when U.S. stock indexes reached record highs and EM bonds and stocks got bought was impressive. It highlighted the emerging focus on inflation and the dollar which showed signs of weakness last month.

Following the break above $1518/oz gold is once again eying a test of the mentioned September high. With the market already on the move the latest developments in Baghdad has sped up the move towards challenging the mentioned high. A break above would, using Fibo extensions, bring $1589/oz and $1622/oz into focus

Source: Saxo Bank

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.