Markets have reacted swiftly to escalating tensions in the Middle East following Israel’s overnight launch of pre-emptive strikes against Iran. The attack, along with growing concern over Tehran's nuclear program, sparked a sharp rally in both gold and oil prices.
Investors are flocking to safe-haven assets and energy stocks as the situation develops, with fears that further escalation could have wide-reaching consequences for global markets, particularly risk assets.
Gold surges as investors seek safety
Gold prices surged overnight, hitting a fresh high of $3,409 per ounce as traders sought refuge from the increasing geopolitical risk. The rally reflects a broader shift toward safe-haven assets, with major gold stocks leading the charge.
The VanEck Gold Miners ETF (GDX) saw a 3% gain, while large-cap gold stocks, including Newmont and Evolution Mining, posted impressive gains, with Newmont’s share price climbing by nearly 6% to $88.15.
According to IG market analyst Tony Sycamore, risk asset markets were “not in the mood to wait and find out” the details of the Israeli strikes as they trickle out. The news sent S&P 500 equity futures down 1.3%, while oil has surged and gold is “not far off from its $3,500 record high”, he noted.
Oil prices soar on supply concerns
Oil markets have been similarly reactive, with Brent crude prices surging to new two-month highs. The price of oil jumped by 5% overnight, crossing the $74-per-barrel mark, as traders anticipate tighter supply amid the heightened risk to global oil flows.
The attack, combined with fears of retaliatory actions from Tehran, has also raised concerns about disruptions to key shipping routes like the Strait of Hormuz, through which a significant portion of global oil exports pass.
Sycamore noted that oil prices reached a high of $74.35 per barrel this morning, before easing slightly to $73.38. He cautioned that if tensions continue to escalate, crude could break its downtrend resistance at $74 and target $80, further driving price volatility. Investors are closely monitoring developments in the region, as any further escalation could tighten supply and push prices higher.
The rally in oil prices has translated into strong gains for local energy stocks, with Woodside Energy, Beach Energy, and Karoon Energy among the biggest beneficiaries. Woodside shares surged 8.1%, adding $3.5 billion to its market cap as investors piled into energy stocks. Beach Energy and Karoon Energy also saw notable gains, up 5.1% and 9.7%, respectively.
The escalation also has implications for the natural gas industry, with risks to critical eastern Mediterranean natural gas fields, which could affect Europe’s liquefied natural gas (LNG) supply.
A flight from risk
Bond markets were also seeing increased demand as investors sought out low-risk assets. The yield on US 10-year Treasuries dropped by 5 basis points to 4.33%, while Australian government bonds saw a 10-basis-point decline.
According to Sycamore, the shift in risk sentiment following the strikes could be a longer-term phenomenon, given the uncertain geopolitical climate.
“This morning’s alarming escalation is a blow to risk sentiment and comes at a crucial time after macro and systematic funds have rebuilt long positions and investor sentiment has rebounded to bullish levels,” he said.
“While we await further news and a potential response from Iran, we are likely to see a further deterioration in risk sentiment as traders cut risk-seeking positions ahead of the weekend.”