Thursday proved to be another rough day for precious metals. Gold was unable to build on the positive momentum of the prior two sessions, opting instead to fall back below $4,400 per ounce. Silver likewise failed to stay above $70 an ounce, falling by 4.6% yesterday when all was said and done. Gold investors have been waiting all month for safe-haven narratives to kick in but have instead been saddled with a 15% drawdown. This is by no means unprecedented. In times of crisis or uncertainty, institutions will often relinquish their most liquid positions first, which certainly include precious metals. A bigger driver however is the shift towards yield-bearing assets, which unfortunately do not include gold or silver. Interest rates on the dollar are now expected to rise this year, making the greenback a far more attractive prospect than it was just a few short weeks ago. Central banks rapidly started to increase their holdings of gold after the conflict in Ukraine, but such purchases have begun to slow down recently. Most notably, the central bank of the Republic of Turkey has sold 60 tonnes of gold so far this month, while the Russian central bank has also lightened its stores since the start of the year, albeit to a very minor extent. Crude oil prices are once again in the three-figure range, with Brent Crude futures climbing to $106 per barrel and WTI rising to $93. Markets at large continue to fluctuate in line with the perceived likelihood of a resolution in Iran, which has so far remained elusive. In the US, the S&P 500 and Nasdaq Composite indices closed at yearly lows yesterday, with the latter losing 2.4% during Thursday’s session. The Nasdaq has now lost over 10% from recent highs, placing the index in correction territory. One of the major contributors to the downward pressure was the selloff in Meta Platforms (META), which lost an impressive 8% yesterday. In a landmark trial, Meta, along with Google, was found liable for damages in a social media addiction lawsuit. The social media sphere in general will be feeling the pressure, with the verdict already being called a “big tobacco moment”, referring to a legal judgement whereby an industry is held accountable for knowingly causing public harm. #OIL #IRAN #META
A potential ceasefire between the US and Iran is beginning to emerge. According to some reports, negotiations are progressing in the right direction and markets are cautiously optimistic that hostilities may be drawing to a close. Oil prices have dropped significantly so far this week, allowing the Brent Crude benchmark to drop below the psychologically important $100 level. Brent futures are currently trading for $99, while WTI futures are down to $88 per barrel. West Texas prices were further assuaged by an unexpected buildup in US crude inventories last week, while the strategic petroleum reserve has remained stable at just over half of maximum capacity. Although nothing concrete has been established as of yet, markets have welcomed the recent developments with open arms. The Japanese Nikkei 225 index opened notably higher this morning, gaining 3% before pulling back. The Korean Kospi index, which suffered a number of brutal price swings over the past two weeks, likewise made a prudent move higher as the session got underway. US stock markets have been hammered over the past few weeks, but the major indices are once again on the front foot so far this week and futures contracts are in the green going into today’s session. The whiplash in precious metals continues. Monday saw a huge selloff in gold, pushing prices all the way down to $4,100 per ounce, but the move quickly reversed course after sweeping the lows and precious metals have since gained a measure of positive momentum. Gold and silver both pushed higher this morning, with the former climbing back up to $4,600 per ounce, while silver managed to claw its way back over $74 after seeing lows of just $61 on Monday. Cryptocurrencies meanwhile continue to exhibit a rare display of stability, with Bitcoin content to hover around $70,000 per coin. Despite all the surrounding commotion, Bitcoin has remained within a relatively tight price band for the past six weeks, reacting very little to developments in Iran. Cryptocurrencies are normally all too happy to plummet at the first sign of trouble, so the current behaviour suggests a fundamental change in market structure. #OIL #GOLD #CEASEFIRE
The correction in precious metals continues. Gold fell by over $500 per ounce last week, a decline of over 10% and its third consecutive weekly loss. The precious metal dropped a further 3% this morning to around $4,300 and is now on track to close its ninth consecutive day in the red. Gold-backed ETFs are contributing heavily to the drop after seeing billions of dollars in outflows over the past several weeks. The long gold trade was perhaps somewhat overcrowded leading up to the strikes on Iran, which provided an apt excuse for many to book profits. The psychologically important $5,000 threshold seems further away than ever and as of this morning the precious metal is no longer in the green for the year. The same can be said of silver, which now sits at $65 per ounce after having lost an eye-watering 15% last week. Cryptocurrencies are holding up surprisingly well in comparison, with Bitcoin making marginal gains this morning and pushing over $68,000 per coin. The dollar has suspended its relentless push higher for the time being, causing the DXY to stabilise around 99.5. A number of Asian economies are beginning to feel the pinch of being cut off from Middle Eastern oil, pressuring their respective currencies. The yen flirted with 160 last week and is on the back foot again this morning, prompting Japanese monetary authorities to signal their readiness to step in to defend their currency should the need arise. Over in South Korea, the won fell to a 17-year low this morning, touching 1,511 per US dollar. Events surrounding Iran are weighing equally heavily on Japanese and Korean stock markets, with the Nikkei 225 falling as much as 5% at one point this morning and the Kospi index once again approaching circuit breaker territory with a 6% drop shortly after the opening bell. US futures are down around half a percent at the time of writing. The spread between Brent Crude and WTI remains wide open, with the former trading for $112 per barrel and the latter trailing behind at a comparatively modest $98. The difference between the two benchmarks is a useful illustration of the disruption to oil flows in the region, which remain severe. Iraq recently shut down production at all foreign-operated oil fields because no tankers were made available to pick up the precious cargo. Local oil storage has hit maximum capacity and there is simply nowhere left to store what is being extracted out of the ground. As per the latest ultimatum presented to Iran, the regime has around 24 hours left to open the Strait of Hormuz, failing which the US will launch attacks on Iranian power plants and electrical grids. With the deadline fast approaching, oil markets are braced for volatility. #BRENT #GOLD #IRAN
Yesterday’s FOMC meeting provided more drama than most traders were expecting. The Federal Reserve elected to leave interest rates unchanged, to the surprise of no one, but during the subsequent press conference, Fed Chairman Jerome Powell floated the dreaded possibility of a rate hike. This would have been unthinkable just a few months ago, but the threat of inflation resulting from a prolonged conflict in the Middle East has changed the playing field. A rate hike remains unlikely in the immediate future, but the mere mention of such has sent shockwaves throughout financial markets. Precious metals were among the hardest hit. Gold plummeted all the way down to $4,500 per ounce at one point before rebounding to $4,650 by the daily close, a loss of 3.5% on the day. The price action in silver was even more extreme, with the white metal dipping to just $65 per ounce before climbing back up to $72 by the end of the session. The dollar currency index also took a decent hit, falling from 100.2 to 99.1 on Thursday, while US indices incurred only minor losses. Oil markets continue to provide entertainment. The Brent Crude index shot all the way up to $114 yesterday before settling lower, but the more interesting point of note is the widening gap between Brent and WTI. Seaborne futures are currently trading for around $105 per barrel, while West Texas Intermediate futures are a mere $92 in comparison. The last time the spread was this high was over a decade ago. Brent Crude remains at the mercy of acute supply disruptions in the Middle East, which are affecting oil deliveries around the world and adding a considerable premium to prices. WTI meanwhile is relatively isolated from such concerns, with supplies remaining stable and contracts being priced accordingly. The lack of oil shipments out of the Persian Gulf has forced many countries to pursue alternative procurement options. Japanese refineries have stepped up purchases of Midland crude to cover the shortfall in regular deliveries, while other countries in Asia are also diversifying their oil suppliers. #FOMC #GOLD #OIL
With all the squabbling around surging crude prices, now is as good a time as any to talk about where our oil comes out of the ground. For a long time, the Middle East has had a reputation for being the world’s petrol pump, but how true is this today? From the 1960s onwards, the Gulf has indeed been a dominant region for oil production, with Saudi Arabia contributing the bulk of exports and Iran, Iraq, the UAE and Kuwait bringing up the rear. Except for a brief period in the mid-1980s, the Middle East produced more oil than any other region on the planet, by a sizeable margin. The United States and Russia (at the time the Soviet Union) were typically the second and third largest producers respectively, while the rest of the world combined to fill in the gaps. From the Arab perspective however, the early days presented a major problem. At the time, oil extraction in the Gulf states was in the hands of Western oil companies, often called the “Seven Sisters”, including the likes of British Petroleum, Shell, Chevron, ExxonMobil, etc. Local governments in the Middle East received royalties but had little to no say over the decisions made by these companies. Despite sitting on vast reserves, the countries in question were almost powerless on the world stage. Something had to change. OPEC, or the Organisation of the Petroleum Exporting Countries, was formed in 1960 and included Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The group was founded to wrestle control of its hydrocarbon resources out of the hands of foreign powers and back into the hands of its member states. The group would gradually add new members to its roster, slowly gaining prominence and quietly clawing back control over the years that followed. Oil prices remained stable throughout the 1960s at around $2.50 per barrel (roughly $25 in today’s money), but by the next decade OPEC had doubled its membership count and had gained enough autonomy to allow the organisation to control the supply, and therefore price, of oil on the world stage. Things were about to change dramatically. In 1973, Egypt and Syria attacked Israel. As a result of Western support for Israel following the attack, OPEC imposed an oil embargo on the US and Western Europe, quadrupling prices within months and causing petroleum shortages. OPEC used its new-found might to launch an all-out price war, which it decisively won. The organisation proved, convincingly, that it had a stranglehold over global oil markets, which gave the United States a proverbial kick up the backside to secure its own position. OPEC’s strength would remain unchallenged over the following decades, and indeed until the modern era. But then something changed. Something changed because of a specific technological breakthrough. Something that would completely upend the international balance of crude oil production. Enter: shale. Extracting oil from shale rock is difficult, hence why it was not done at scale until recently. Fracking was first tested all the way back in the 1940s but did not become economically viable until much more recently. In the early 2000s, hydraulic fracturing, combined with horizontal drilling, suddenly made extracting oil from shale an industrial possibility. This turned out to be a game changer. The US sits upon massive shale fields, the most prominent of which being the Permian Basin. If these shale fields were the vault, then fracking was the key. Not only could the US finally exploit its oil fields, but it could do so relatively efficiently. Extracting oil from shale has several major advantages. Firstly, setting up drilling operations take weeks or months, compared to multiple years for large, conventional oil fields. Secondly, initial costs are minor and incremental, unlike traditional operations, which require billions in investment upfront. Thirdly, shale exploitations are extremely flexible. Environmental and bureaucratic concerns are obviously nothing trivial when it comes to fracking, but shale is much easier to set up and start pumping compared to the colossal headache of regular oil drilling. Offshore deep-water drilling is another beast entirely, sometimes requiring a decade of groundwork before the first drop of oil is produced. The floodgates opened. In 2010, the US was pumping out 5 million barrels of oil per day. At the tail end of 2025, that figure rose to almost 14 million barrels per day. Hard to argue with such results. The increase in domestic production caused a fundamental shift in global oil markets. The surge in oil extraction meant that the US turned from a net importer to a net exporter of crude oil. Quite suddenly, the US was producing more crude oil than it needed, something that had not happened since the early twentieth century. The additional supply of crude oil from America diluted OPEC’s influence on the world stage, and the group of oil producing nations was not happy about it. In 2014, the organisation once again started throwing its weight around, but this time, instead of tightening the supply of oil, Saudi Arabia and other countries began to flood the market with massive amounts of crude, in an attempt to lower prices as much as possible. They were successful. The price of oil went from over $100 per barrel in 2014, down to $30 per barrel by January 2016. The goal was to drive US producers out of business. Given the novelty of the shale business at the time, extraction operations in the United Stated were still relatively costly compared to Gulf drilling, so the idea was to drive the price per barrel below what it would cost US companies to extract from the ground. It was similar to the strategy that Subway used back in 2008 when it launched the $5 footlong to increase the company’s foot traffic and undercut its competitors in a bid to gain market dominance. The first price war in 1973 was an undeniable success and showed the world who really wore the trousers in the global oil relationship. In contrast, the second price war failed with flying colours. The collapse in oil prices did indeed cause a degree of short-term pain in the United States, resulting in many bankruptcies and many more job losses, but ultimately the event forced the US to become more efficient, more technologically advanced, and more economically resilient. The results speak for themselves; US shale operations continued to ramp up over the following decade, finally reaching the current paradigm whereby the United States dwarfs all other nations in terms of crude oil production. OPEC no longer had the gravitas to dictate oil markets, that much was clear. The answer? Add more members. OPEC+ formed at the end of 2016 as a direct result of growing American influence in international oil markets. The 13 members of the original group welcomed 10 more countries, including Russia, Mexico, Sudan, as well as a wave of countries from across Central and South East Asia. OPEC boasts over a quarter of the globe’s oil production, but OPEC+ extends that to more than half. On the other hand, just by themselves, the US and Canada also produce a quarter of all crude oil worldwide, the vast majority of which comes from the United States. While the inner core of OPEC remains well coordinated and responsive to market fluctuations, the same cannot be said of OPEC+, which is a much more flexible group. The interests of Saudi Arabia do not necessarily line up with those of Russia for example. The lack of internal cohesion, as well as the lack of enforcement in production targets, often translates to lesser effectiveness overall. In contrast, the US is a single nation, one that now produces as much crude oil and other liquid fuels as Saudi Arabia and Russia combined. Oil markets are in a new era. Just as the formation of OPEC disrupted the status quo in the 1960s, shifting the balance of power away from Western petroleum companies and towards Middle Eastern nations, the US shale revolution has likewise tipped the scales, this time in favour of the United States. International crude markets are in unchartered waters; the old rulebook has been discarded. The Middle East remains vital for European and Asian oil markets, but not for the United States. The consequences of this simple fact are far reaching, particularly in light of current events.
Markets have stabilised a little over the past couple of days, with the US dollar making a minor retreat from recent highs. The DXY remains above 99.5 but has halted its relentless push higher for the time being. Gold has been almost completely flat so far this week, oscillating around the $5,000 mark and content to go no further. Stock markets around the world rose cautiously during the last two sessions and Asian stocks were on the front foot again earlier today, with the Nikkei 225 being uplifted by better-than-expected balance of trade data this morning in Japan. US futures contracts edged higher last night, but market sentiment remains temperamental ahead of the FOMC meeting later today. Even oil prices have calmed down in recent days, with Brent Crude stable around $100 per barrel and the WTI index falling to $94 following reports of a surprise build-up in US crude inventories. Attentions are quickly turning to the FOMC meeting later today. The Fed is not expected to enact a rate cut on the dollar any time soon, but market participants will nevertheless be eager to know what the central bank has to say about rising oil prices and the downstream threat of inflation. The meeting will be Jerome Powell’s second-to-last at the helm of the Fed, that is unless there are delays in appointing the next Chairman. Kevin Warsh is the next in line but has yet to be officially confirmed by the US Senate, a process that is being held up because of a legal dispute involving Jerome Powell. Before the meeting, traders may want to keep an eye on US PPI figures, which will give an insight into rising production costs. The crypto sphere received a surprising dose of good news yesterday following a joint statement from the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC), asserting that most cryptocurrencies are not securities. The ruling is very straightforward, but cryptocurrency traders have been waiting for over a decade to hear it. According to SEC Chairman Paul Atkins, “this interpretation will provide market participants with a clear understanding of how the Commission treats crypto assets under federal securities laws”. In many ways, the interpretation marks the end of an era of uncertainty, one that has mired the industry for a long time and slowed development to a crawl in recent years. Not much of a reaction in cryptocurrencies so far this morning, with Bitcoin keeping to $74,500 per coin and the wider crypto markets staying the course. #FOMC #SEC #CRYPTO
