The conflict between us and Iran affects capital market: low oil price shocks gold price soars

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 The conflict between us and Iran affects capital market: low oil price shocks gold price soars


According to CCTV news, in the early morning of January 8 local time, the U.S. Assad Air Force Base in Anbar province in western Iraq was attacked by missiles.

After the attack, Irans Islamic Revolutionary Guard issued a statement, announcing that the attack on the US Assad Air Force Base in Iraq was to avenge Sulaimani, commander of the Holy City Brigade subordinate to the Revolutionary Guard, who was killed by US forces on January 3.

Since Sulaimani was killed in the attack, the conflict between the United States and Iraq has been escalating.

On January 6, the three major U.S. stock indexes once got rid of the influence of tension in the Middle East and all ended higher. But on the 7th, the three major indexes closed lower, with the Dow down nearly 120 points. On January 8, the overall performance of Asia Pacific market was also sluggish, with the decline of Nikkei 225, Shanghai index and Shenzhen composite index exceeding 1%.

By contrast, gold and crude oil have been the biggest beneficiaries of recent tensions in the Middle East.

In early trading today, spot gold broke the $1610 / oz mark for the first time since March 2013. At the same time, the international oil price continued to rise, the US WTI crude oil futures price once rose more than 4%, breaking the $65 / barrel threshold.

The US Iraq alert has not been lifted. How about the future of crude oil and gold? Will it continue to rise?

Fundamentals remain unchanged and international oil prices will fluctuate at a low level

If the conflict continues to escalate, or even there is a war, the international oil price may further rise or even soar. However, conflicts in modern wars are generally short-lived. After the mediation of conflicts, the situation of oversupply in the international crude oil market has not changed. The supply and demand sides are facing more uncertainties, and the oil price will remain low and volatile. Zhao Lutao, associate professor of the center for energy and environmental policy research at Beijing University of technology, told China Economic Weekly.

Looking back on the international crude oil price trend in 2019, Zhao Lutao analyzed that the fluctuation range of international oil price in 2019 was significantly reduced, and the annual average price was lower than that in 2018: Brent crude oil annual average price was 64.28 USD / barrel, WTI crude oil annual average price was 56.98 USD / barrel, down 9.90% and 12.64% respectively compared with that in 2018.

According to the report of international crude oil price analysis and trend forecast 2020 written by Zhao Lutao, affected by trade friction and intensified geopolitical tensions in 2019, the global economic development is in a downturn, the growth rate is slowing down, the uncertainty is increasing, and the growth of oil demand is weak. Although OPEC + reached an agreement to reduce production, emerging oil exporting countries, mainly the United States, continue to increase production, making the situation of oversupply accompanied by 2019. In such an environment of supply and demand, international oil prices continued to rise in the first quarter, rebounded slightly after a slight fall in the second quarter, and reached an annual oil price peak in April. In the third quarter, they remained volatile last year, and the optimism of the global economy gradually increased in the fourth quarter. OPEC + announced to further deepen production reduction, and oil prices fluctuated slightly upward.

The report predicts that the international crude oil market will continue to oversupply in 2020, with more violent geopolitical conflicts and increasing uncertainty of oil prices. Brent and WTI crude oil are expected to reach an average price of 61-71 USD / barrel and 53-63 USD / barrel.

Talking about the impact of the escalation of the US Iraq conflict on the crude oil market, Zhao Lutao told China Economic Weekly, the US and Iran have been in a tense situation before. Affected by the black swan incident, our forecast for oil prices has been raised by two dollars. If the Strait of Hormuz is sealed in the extreme situation, the oil price will certainly soar, but the possibility of the extreme situation is not great. From the fundamental point of view, it is still a problem of weak demand in general, so it is expected to remain low volatility.

From the perspective of investment, Zhao Lutao analyzed that with low interest rates and uncertain factors such as the US election and geopolitics, the gold market will continue its trend in 2019 and suppress the rise of international oil prices. Crude oil futures market is volatile, the trend is not clear, and the investment risk is increased.

Historically, the impact of crude oil on gold is generally positive correlation, but in recent years, the trend tends to be negative correlation.

Gold is also rising, gold and oil prices are rising together, which is not a normal state. Zhao Lutao said straight.

Gold price with black swan wings

Long before the black swan of the US Iraq conflict came, gold had its best market in seven years in the past year.

In September 2011, the price of gold broke through 1900 US dollars / ounce, becoming a historical high. Subsequently, the gold price weakened, and the level of USD 1350 / oz has been the gateway upper limit of the gold price. On June 25, 2019, the international gold price broke away from the six-year range shock and hit the 1400 dollar / ounce mark.

No matter the international institutions such as Goldman Sachs, Citigroup and UBS, or the domestic institutions such as CICC strategy and CSCI, they are firmly optimistic about the performance of gold in 2020.

Earlier, Citibank reported that bullish gold fever proves that the target price of $1500 / oz seems reasonable. In a bullish scenario, gold prices will be between $1500 and $1600 an ounce over the next 12 months.

Research institutions generally believe that tensions in the Middle East stimulate risk aversion and boost investors interest in gold.

According to an analysis released by the global market department of the Bank of China, geopolitical uncertainty and demand for safe haven assets caused by the US Iraq tensions, combined with seasonal factors and market expectations for loose monetary policy in major economies this year, jointly pushed gold prices higher continuously. However, it can be expected that the current situation has not yet reached its peak, and the two sides will still engage in multiple rounds of fighting.

If Iran takes military action through agents, the two sides are bound to play back and forth between the conflict and negotiation, and the gold price is expected to fluctuate upward. In the short term, the gold price is expected to stand at 1600 US dollars / ounce, so it is necessary to be wary of the gold sell-off brought by the negotiation process of both sides exceeding expectations. If there is a positive military conflict between the US and Iran, which leads to the fermentation of market risk aversion, the gold price may quickly rush up to 1650 US dollars / ounce to 1700 US dollars / ounce If the two sides negotiate directly, gold will probably be sold out in panic, and gold price is expected to return to the origin of this round of rising 1510 US dollars / ounce, and even there is the possibility of a correction to over 1500 US dollars / ounce.

(function() {(window. Slotbydup = window. Slotbydup| []). Push ({ID: u5811557, container: ssp_, async: true});}) (); source of this paper: Han Jiapeng, editor in charge of China Economic Weekly