Gold surges, crude oil and base metals skyrocket on Middle East tensions

Libya Crisis: Global markets significantly moved on Monday, with gold, crude oil, and base metals surging on the back of escalating geopolitical tensions and supply disruptions. The conflagration in the Middle East and the cuts in Libya's oil production have brought about broad market volatility, forcing safe-haven assets and other major commodities to rise.
 

Gold nears record highs

Gold surged to within a whisker of its record high as investors flocked into safe havens amid an increase in geopolitical tensions. Recent comments by Federal Reserve Chairman Jerome Powell that rate cuts may be to further increase gold's lustre, especially after last week's rocket and drone attacks on Israel from Hezbollah fighters in Lebanon. While the heady combination of a low-interest-rate environment and increasing demand for safe havens has strengthened the bullion, more gains can come from improving demand in the largest markets of India and China.

“Gold prices dipped slightly this week but remained near record highs, spurred by growing expectations of a September interest rate cut by the US Federal Reserve. Fed policymakers' confidence in aligning inflation with targets has increased despite earlier high readings. Fed Governor Christopher Waller suggested a rate cut is imminent amid economic uncertainties,” Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies, Angel One said.

Crude oil spikes on Libyan supply disruptions

Crude oil prices jumped 3 per cent on Monday, as supply disruptions in Libya heightened fears of a shortage in supplies after its eastern government shut all production and exports. This development adds to the already existing concerns sparked by the ongoing conflict in the Middle East. Waha Oil Company has already signalled that it could face a full shutdown shortly amidst the ongoing protests, Libya's National Oil Corporation hasn't confirmed the closure yet. The oil inventories at Cushing, Oklahoma, meanwhile, have fallen to six-month lows and hence pushed the market concerns higher.

According to Mallya, Crude oil prices are expected to witness volatile moves amid mixed signals of economic growth and geopolitical tensions. “A significant 4.4 million barrel drop in US oil inventories helped offset concerns about weakening demand in China, where Q2 economic growth slowed to 4.7 per cent. Additionally, geopolitical tensions, such as an attack on a Liberia-flagged tanker by Yemen's Houthis in the Red Sea, raised supply worries, supporting prices.”

Base metals rally

The base metals have also jumped significantly as copper prices are likely to reach a three-week high in Shanghai. These gains were supported by a recovery in demand from China and optimism over a potential US. interest rate cut in September. There is cautious optimism as China goes into peak consumption season, with further rises in prices likely to be capped if they go too steep. Aluminium prices also rose in Shanghai, tracking LME, as supply concerns and expectations of rate cuts could strengthen demand for metals overall and weaken the US dollar-supported prices.

Going forward, gold may continue to remain firm on safe-haven demand as tensions in the Middle East persist, and with the expectations of rate cuts by the US crude oil prices may also sustain at their current highs due to the sustained supply disruptions in Libya and the increased geopolitical risks. Base metals, particularly copper and aluminium, may further extend their rally on the back of recovering Chinese demand and likely US monetary easing.