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Iraq fuels oil and gold price rises

Escalating tensions in Iraq have affected commodity prices, most notably the energy sector, with oil being one of the biggest movers. Brent Crude is up 4.3 percent on the week. As Iraq is the second largest oil producer in OPEC, Saxo's Ole Hansen notes that if production and exports start to slow it could lead to a spike in prices.

The uncertainty in the Middle East has also had an impact on precious metals. Gold has risen 1.6 percent on the week and silver 2.7 percent. Hansen says there was a similar situation at the beginning of the year due to the Ukraine crisis. “The geopolitical risk now coming from Iraq is lending some support to those two metals once again,” notes Hansen.

He also points out that gold has benefited from news that the mining strike in South Africa could be coming to an end. Since January, the strike has had a detrimental effect on the production of platinum and palladium.

But the gains from energy and precious metals have been offset by losses in industrial metals. Hansen warns these commodities are adversely affected by rising oil prices. “Just like we saw in 2011 and 2012 when we had the Libyan war and sanctions against Iran, we saw a spike in oil prices towards the USD 125 area for Brent crude,” he says. A reduced supply could negatively impact global growth which in turn could cut the demand for industrial metals.

02:20 minutes
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