Iran-Israel conflict: Gold, oil set to trade higher; GCC stocks to come under pressure

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Gold and oil prices are expected to trade higher when markets reopen on Monday after the weekend due to concerns about the Iran-Israel military conflict.

Analysts say that markets have already factored in regional geopolitical tension between the two arch-rivals, especially after the Israeli attack on the Iranian embassy in Syria. Hence, the commodities will not massive a jump.

However, the UAE and other Gulf Cooperation Council (GCC) markets could also come under pressure on Monday morning and will most likely trade in a negative territory.

Tehran launched an air attack on Israel in the wee hours on Sunday with 300 drones and missiles, prompting airlines to avoid Israel, Iran and other neighbouring countries’ airspace and opt for longer, but safer, air routes to get to their destinations.

“Markets could respond with strong volatility as traders take into account the geopolitical developments in the Middle East over the weekend and the risks involved. As a result, there is a strong possibility that gold prices could surge more as investors move into safe-haven assets to hedge against the risks of a wider conflict in the region. Crude prices could rise as well, fuelled by concerns over an impact on production and delivery capacity in the oil-rich region,” said Joseph Dahrieh, managing principal at Tickmill.

Gold prices recently hit a record high while Brent oil is trading at $90 a barrel, rising from $83 a barrel a month ago.

“Gold and oil prices could see continuous increases if geopolitical tensions continue to exacerbate over the next few days and weeks as risks of a wider conflict remain. Oil could remain sensitive to any damages to production and delivery capacity while sentiment could drive gold,” Dahrieh told Khaleej Times in an interview.

Vijay Valecha, chief investment officer at Century Financial, said the impact of the Iran-Israel conflict has already been factored in the geopolitical risk safe havens like gold and oil over the last fortnight.

“Bullion and oil traders have already preempted the move with both the assets up by 5 per cent so far this month. Traders have been buying these assets since the April 1 attack on the Iranian embassy in Israel. However, an all-out involvement across all the players could cause mayhem, with the possibility of further breakout rallies in gold and oil.”

The short-term view, according to Century Financial, remains bullish with chances of further upside breakout should the Israel response become even more aggressive. “In a scenario where the Iranian response is limited to ongoing drone attacks, we could see some profit booking across both the geopolitical risk hedge assets.”

GCC markets

Valecha added that GCC markets, initially, could move in line with the US equity futures overnight market open and major declines in the US could see the GCC indices following a similar pattern. “Should the war-related risk events deteriorate further, GCC equity markets led by banking and real estate sector could witness downfall.”

He said that when oil rallies, GCC equities will behave in line with the broader global equity risk scenarios. “Most of these economies have already started showing non-oil revenue diversification. This implies the possibility of decoupling between rising oil prices and the actual GCC equity market moves.”

Joseph Dahrieh expected stock markets in the GCC region could come under pressure as investors could move away from riskier assets.