The Wall Street was all calm before the United States decided to initiate a drone strike that ultimately killed a top Iranian commander. As a result, the tone in global markets has shifted from calm to cautious due to concerns over an escalation in tensions.
Whenever there is a major geopolitical event that sends shockwaves throughout the global markets, investors tend to dump equities and pile into haven assets e.g. gold, oil etc.
Here we list four assets that may benefit from the intensifying U.S. – Iran conflict as the world awaits the expected “severe retaliation” from Iran.
Gold spot prices had a great 2019 year. The latest assassination of a top Iranian general is likely to mean that Gold’s outlook for 2020 has further improved. On December 03, when the event took place, Gold recorded the best day since August 23 as it threatens to record a new 7-year high above $1557.
Kit Juckes, chief FX strategist based in London, has no doubts over which asset is the one benefit the most from the increased U.S. – Iran tensions.
“Gold’s a winner as tension increases, and oil prices are higher too.”
Forex safe-haven assets
Similar to Gold, investors tend to turn their attention to Forex safe haven assets, namely the Japanese yen and Swiss franc. For this reason, Valentin Marinov, head of G-10 currency research in London, called the yen and Swiss franc “attractive” options.
Yen hit a 3-month high against the USD while the CHF hit the highest levels against the USD since September 2019. On the other hand, the so-called commodity currencies e.g. Canadian, Australian, and New Zealand Dollar are victims of the shifted investors’ focus to “safe-haven” assets.
Unsurprisingly, oil has increased in value amid concern over potential supply disruption. The oil is an especially interesting asset due to Iran’s position – that of the second-largest oil exporter in the world.
Brian Levitt, global market strategist at Invesco, believes that U.S.-Iran conflict won’t be a “one-and-done” event.
“We expect that uncertainty may persist in the near term as markets await potential retaliation from Iran and disruption in the global oil markets”.
The oil prices hit the highest levels since April 2019 on the back of U.S. airstrikes.
The shares of major arms producers soared higher on Friday as investors want exposure in the defense sector, should the conflict further escalate.
For instance, shares of L3Harris Technologies gapped higher on Friday given the prominent role that the world’s sixth-biggest defense contractor may play in the potential direct confrontation between the United States and Iran.
Other defense stocks to consider are Northrop Grumman, Lockheed Martin, Raytheon, Kratos, Textron etc.
The sudden increase in tensions between the U.S. and Iran following the assassination of the top Iran commander signals more volatile price action in 2020. On Friday, investors were selling equities and jumping over into safe haven assets e.g. gold, oil, yen, franc etc, and this trend may continue till the rest of January.