Oil prices have surged by 4% in early trading today amid escalating tensions between the US and Iran, while gold has fallen sharply, bucking its traditional safe-haven status during times of geopolitical instability. The escalation in the Gulf region, particularly concerning the critical Strait of Hormuz, has set a volatile tone for global markets, with Asian equities plummeting and pointing to a weak opening for European and Wall Street markets.
Brent crude oil prices rose by 4.2% to $79.18 per barrel in London trading, amid reports from Tehran that the Strait of Hormuz had been closed, despite US officials insisting it remained open with some 20 ships escorted through it over the past 24 hours. The renewed conflict follows recent missile and drone strikes on US bases by Iran, effectively ending a ceasefire and diplomatic efforts according to Tehran.
Gold prices, often seen as a safe-haven asset during times of market uncertainty, fell by 1.5% to $4,060 per ounce. This divergence in oil and gold prices suggests that investors are pricing in supply disruption risks for oil but not uniformly benefiting all traditional hedges, with some analysts attributing this partly to profit-taking and growing scepticism surrounding the AI boom.
The sell-off in Asian markets was pronounced, with Japan's Nikkei index losing 2.1%, Hong Kong's Hang Seng slipping 0.1% and China's CSI 300 declining by 1.78%. South Korea's Kospi plummeted nearly 10%, a stark reversal from its recent record highs driven by the AI boom.
South Korean markets were hit hard, with chipmaker SK Hynix shares plummeting over 15% in Seoul, partly due to profit-taking after its successful Nasdaq debut last week. However, growing investor scepticism surrounding the AI boom and inflationary pressures posed by rising oil prices also contributed to market unease.
Closer to home, sterling fell 0.2% against the dollar to $1.3377, as the UK enters a crucial week in its political landscape ahead of Friday's Labour leadership election and subsequent possible Prime Minister appointment. This development will be closely watched alongside US Federal Reserve Chair Kevin Warsh's testimony and consumer price index data for signals on future monetary policy.