European update – US/Iran, oil, gold, bitcoin

Safety First

European stock markets are deep in negative territory at the start of the week and things are unlikely to improve any time soon.

Source – Thomson Reuters Eikon

I’ve spent months looking forward to the day when I’d be able to talk about something other than the US-China trade war and Brexit, unfortunately I now find myself looking back fondly on the excitement of a Trump trade remark or a day of debates, amendments and voting in Westminster. This is not what anyone wants to see.

The escalation in the middle east was both unexpected and unwelcome. Investors are now fully in defensive mode, hoping for the best but fearing the worst. Safe havens are naturally performing solidly while stocks and other risky assets take a pummeling.

Unfortunately, the rhetoric from all sides appears to be heating up rather than cooling and retaliation looks almost inevitable. The Iraqi Parliament’s decision to remove foreign troops clearly shows its disapproval for the actions of the US and others will likely be drawn into the dispute. Now is a time for calm heads and I’m afraid there doesn’t appear to be many of those around.

Oil adds to gains on retaliation fears

I expect we’ll start to hear a lot more about the Strait of Hormuz over the coming week’s. Global oil’s own thermal exhaust port (for you Star Wars fans out there) could be a potential retaliation target for Iran given the sheer amount of disruption, outrage and panic that an attack on the area – and those within it – will cause.

Oil prices have already spiked in the aftermath of the assassination last week and they’re not slowing down. Brent breezed past $70 and while it is paring some of these gains today, it may struggle to settle back below.

Brent Daily Chart

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Investors flock to safe haven gold

Gold is the obvious beneficiary of these kinds of events, although there are others – Treasuries, the yen and Swiss franc among them. Gold flew through last year’s highs in early trade and now finds itself at near-six year highs and pushing $1,600. A weaker dollar was already creating a decent bullish case for the yellow metal but conflict in the middle east has finished the job. Safe havens are back in vogue and the yellow metal is leading the way.

Gold Daily Chart

Bitcoin is no safe haven

I’ve long been a “bitcoin is a safe haven” skeptic and the last few days hasn’t changed anything. There are those out there that will claim that the cryptocurrency has rallied since Friday – which it obviously has – but there is nothing out of the ordinary about the move in bitcoin. We’ve not even broken the range it’s broadly traded within for the last month. One day, who knows. In certain situations – Argentina, Venezuela etc – perhaps there’s a case. But bitcoin is not gold and certainly not gold 2.0. At the moment, it’s a toy that has the potential to be more, but that’s all.

Bitcoin Daily Chart

Economic Calendar

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