The Major Hedges Amidst Geopolitical Tensions: Oil, Gold, Treasuries, and US Dollar
The recent conflict between Israel and Hamas has drawn attention to the increasing geopolitical threats to financial markets. Investors are currently waiting to see whether this conflict will have a negative impact on the global economy.
Investors sought safety in treasuries amid market volatility.
On Monday, the Treasury market saw a decline in response to the reduced fears of the Israeli-Hamas conflict spreading to other Middle Eastern countries. This led to an increase in the yield on $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ by five basis points, reaching around 4.66%.
What we're seeing is a movement back into Treasuries as it seems geopolitical risks are unnerving some investors, "said Edward Moya, senior market analyst at Oanda. "It's triggered a lot of safe haven movement toward Treasuries.”
However, while yields fell today, the long-term trend is still unclear, Moya said, as an increase in bond supply could help push down demand for treasuries.
Gold holds above $1,900 as Israel-Hamas war rages.
During periods of economic and geopolitical tension, investors often consider gold as a safe investment option. Recently, the value of gold has risen to its highest point since September.
On Monday, the value of gold decreased due to technical selling, following a significant 3% increase in the previous session. The surge in prices was a result of the intensifying conflict between Israel and Hamas, which led investors to seek refuge in gold as a safe-haven asset and pushed prices above the crucial threshold of $1,900.
Considering the recent increase in gold prices, traders may remain interested in buying dips, particularly within the $1,920 and $1,900 range. However, if the situation in the Middle East continues to intensify, shorting gold may not be a wise decision for bears in the near future.
WTI crude posted its largest one-day gain since April last Friday.
Israel-Hamas conflict raises concerns for regional energy production. Middle East accounts for 1/3 of global seaborne trade.
Last Thursday, the International Energy Agency stated that the market's state is "fraught with uncertainty", but emphasized that the current Israel-Hamas conflict has not yet had a direct impact on physical supply.
However, ANZ Research analysts predict that oil prices may soar to $100 per barrel soon due to the escalating risk caused by the Israel-Hamas conflict, despite no direct physical impact on supply yet.
Israel and Hamas do not have a significant share in the oil market, however, as noted in ANZ Research's report on Friday, the risk to oil markets will increase if the conflict expands beyond its current scope.
If [Iran] becomes involved, up to 20 million barrels per day of oil could be at risk of disruption directly and through obstructed logistics," they added.
Safe-haven bids boosted the value of the dollar.
There seems to be a general agreement regarding the US dollar's outlook: as long as the Federal Reserve maintains its goal of keeping interest rates at a high level, the dollar will likely continue to strengthen for the rest of the year.
The instability in the Middle East has the potential to further boost the US dollar's already impressive performance seen over recent months. "The path of least resistance over the very short term is dollar strength on lower risk appetite," said Jason Wong, a currency strategist at Bank of New Zealand in Wellington. But given the scope of the rally in the dollar, "there's a reasonable chance it fizzles out relatively quickly," he said.
Source: CNBC, Bloomberg, Investopedia, Reuters, CNN
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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