As users who listen to the HotCopper Wire podcast may know, I’ve been in Darwin for the last week, and so I didn’t really look at the news across Week 13 of the year (last week, for those who count by days like normal people).
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While I did spot some positivity intraweek as I briefly scanned my portfolio, I also noted Brent Crude prices remained elevated, gold is still under pressure, and I had my concerns about the relevance of the Australian CPI data last week.
Apparently, so did everybody else. And with fresh concerns that Yemen’s Iran-allied Houthi forces may begin firing rockets once again into the Red Sea – which would make two giant oil corridors held hostage by rogue military attacks – clearly, the market is pricing in a worse-than-worst-case outcome.
Thus, Brent soars to US$116/bbl in arvo trades on Monday. What a good way to start the week. Here’s another way of looking at it: Brent is back to where it was in early March, which signified what last week looked like, the worst of the shock.
That brings the price of Brent to a position where it’s up +50% over the last month, while gold has staged a decline of -16%. The former safe haven asset sits ~US$4,455/oz. (Silver has fallen just shy of -25% over the last month.)
Gold’s ongoing decline remains multi-faceted. The oil meme trade is sucking the excitement out of gold. A lot of people, I imagine, have just decided to put money into HISAs, and emerging reports suggest Middle Eastern nations are selling gold to address liquidity concerns borne from oil flow constrictions.
(At the same time, China’s central bank remains a huge buyer; so too for other nations around the place at time of writing, including Kazakhstan.)
“A phenomenon we’ve been seeing in the last few months is new central banks, or central banks that have been inactive or absent from the gold market for a long time, entering the gold market,” World Gold Council’s Shaokai Fan told the media last week.
So there’s obviously still demand for gold – but right now, the Iran War, and the implications of higher-for-longer oil prices, have severely rewritten the assumptions underpinning gold’s historic bull run of recent memory.
So, where to from here? Well, predictably, inflation will keep rising at home and overseas. Don’t forget that Aussies are now facing higher costs at the bowser, as well as the extant impact of electricity prices, up some +30% over the last twelve months (or so), which was why the RBA hiked for the first time this year.
Now we’ve got another war in the Middle East, a fresh energy crisis that is bigger than the 1970’s oil crisis in terms of overall disruption (I truly failed to call that one in a slew of pieces I wrote last year dismissing the immensity of Iran risk – sorry!), and the likely scenarios of fuel restrictions, higher fertiliser and thus food prices, and so on.
And in that environment, the ASX200 is likely to stay well below the 9,000 points mark until this Middle East war comes to any kind of clear wind-down or resolution, which right now, feels out of reach.
It may be a good time to take a look at a high-interest savings account and come back to the market when things make a bit more sense.
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