Iran crisis? Was there anything? No, that’s over. There was something in the news the last few days, but it wasn’t such a great topic. You could put it that smugly if the capital markets could talk. Look at the current gold and oil prices. In the following chart, we have both laid on top of each other since December 30th.
Gold price and oil price drop significantly
Before the killing of Iranian General Soleimani last Friday night, the price of gold was still quoted at $1,530, and rose to $1,611 early yesterday morning, according to the Iranian response. So far, however, the price of gold has fallen back to $1,547. The oil price was at 61.15 Dollars before the killing of Soleimani (WTI oil). After the top at 65.61 Dollars (everything looked like an escalation of the situation), the oil price this morning is at 59.82 Dollars, which is even significantly lower than before the start of this crisis! What does this tell us? The market clearly believes that Iran’s ” mellow attack” on US used assets in Iraq was already the much announced revenge action, and that the issue is over.
Crisis over, back to business as usual? If you trust this scenario, the price declines in gold and oil are of course understandable. The oil price falls because the fear of a supply shortage has been blown away. And the price of gold falls because investors are once again rushing into riskier assets such as equities (after all, equity markets are rising noticeably). So the risk on trade has started up again. The speech by Donald Trump at 5 pm yesterday, in which he said nothing about a military response by the USA to Iran, was of course a major factor.
The current situation in the Middle East
The photo at the beginning of this article shows the entrance to the “Green Zone” in Baghdad, where important foreign institutions are located. Recent reports show rocket attacks on the Green Zone for the third time since the killing of Soleimani. By whom? Perhaps militias allied with Iran, who do not want to comply with the de-escalation of the situation? Apparently there were no casualties. Nobody in the marketplace seems to care about these attacks. Reports from various sources show that Iran is apparently satisfied with this retaliatory measure (yesterday’s missile attack on US bases). It feels like a victory. There will probably continue to be threats and demands that the USA should leave the region. But Iran probably does not want to provoke a US counter-attack, so we can briefly summarize various reports and opinions.
We think: It is quite astonishing that Iran, after this relatively lax attack, is now stopping its “revenge actions”. If this is really the case. Of course, we do not want any further actions, but this is about what has been announced. And there (according to the current status) the pompous threats from Tehran have proven to be a dead letter. It was, if we may say so, obviously only about an attack that could be presented for the domestic political situation in Iran? Iran had threatened so massively with numerous attacks on US facilities. This single attack probably shows that it is well known that a real military confrontation with the US would not end well for Iran. So would they rather rattle a little saber to pacify the domestic political situation?
May we say it like this: Donald Trump played high stakes (perhaps completely unintentionally) and won? Demonstrate full strength against Iran, threaten with escalation, and then announce that he does not want the situation to escalate? If you only look at the current situation, it is a pacification of the situation on a highly emotional level, where both sides do not need war. Donald Trump cannot use it either. Because he wants to be re-elected this year. And he had promised his voters even before his first election to stop the ongoing wars. And what about the two asset classes discussed here? Looking at the bigger picture since the beginning of 2019, the price of gold continues to be on a full upward trend even after the current decline (in simple terms). The following chart shows the gold price trend. So, even without an escalation in the Middle East, the mood for gold investors remains positive?