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Which will rise more - oil or gold?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

A sense of relative calm appears to have replaced the worry and frenetic trading which only yesterday dominated markets across the world. Today, after a turbulent few days since the start of the new year which saw the oil price rise nearly 3.5%, passing the $70 a barrel mark amid tension over threats between Washington and Tehran, prices eased back a little.

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The oil price is now back down just below $70 at around $68.50, having soared in the immediate aftermath of the United States’ unmanned air strike, which killed Qassem Suleimani, a leading military figure in Iran.

What pushed the price higher was the risk of retaliation from Tehran. Any retaliatory attacks on US oil company pipelines, or where Western and American oil companies have invested in new exploration, would undoubtedly trigger another surge in the price of crude. Conversely, any resolution of the conflict between Iran and the US will de-escalate the situation and prices will fall. For now, all the world and the world’s markets can do, is wait and see what happens next.

Tensions in the region and between Iran and the United States, such as this, invariably draw comparison with similar events. During the 1990 Persian Gulf crisis and again in 2003 during the invasion of Iraq, oil prices soared.

Back then though it was a different story when it came to oil supply. It was either made by OPEC, the cartel of mostly middle eastern oil producers, or produced in places considered expensive and risky, like the North Sea. Today it is a different story, with more countries - notably Russia and the US - pumping it out. So the potential for global supply to be disrupted on such a scale has been minimised.

In the short term, the oil price is likely to stay high on retaliation fears. But longer-term thinking is that for that to be maintained there would need to be actual supply disruption to keep prices at current levels and as we’ve already noted, that is less likely to happen today.

During times of uncertainty such as now, not surprisingly, many investors look for safe havens. One such safe haven is the Japanese Yen, which also saw gains, hitting a three-month high against the dollar.

Gold is the traditional one, and true to form the yellow metal immediately shot up to its highest level in almost seven years as investors sought safety as global stock markets fell. However, gold producers also saw their share prices rise on the back of it.

Gold and silver prices are seeing a strong rally that looked quite unlikely until late last year and it is safe to say that gold is likely to remain in favour if geopolitical tensions continue or worsen.

The start of 2020 will already have likely left you with more questions than answers. From what the Washington-Tehran tensions mean for markets, to how to get an income and still keep your investments safe. And tomorrow you have the chance to put your questions directly to our investment director, Tom Stevenson.

Tom’s latest quarterly review of the world’s markets, key asset classes and regions is being presented live tomorrow online at midday.

You can put your questions and queries to Tom here right now. Just click the button on the top right hand side of the screen (three horizontal lines) and submit your question in advance. And then join us for some much-needed answers at 12 noon tomorrow. Everyone’s welcome.

Five year performance

(%) As at 31 Dec 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
Oil -34.3 51.1 15.1 -20.2 24.8
Gold -10.9 7.8 12.8 -2.8 18.0

Past performance is not a reliable indicator of future returns

Source: Refinitiv in USD terms

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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