Commodity wrap: oil crashes as Trump backtracks on Iran threat; gold down

The commodities market has been experiencing a rollercoaster ride at the beginning of the week with oil prices reversing course and plunging sharply, while gold hit its lowest level since November 25 of last year. 

Oil prices fell over 13% Monday after US President Donald Trump postponed potential military strikes against Iranian power plants for five days, delaying a threatened escalation in the four-week-old conflict.

Meanwhile, gold prices plummeted to its lowest level in four months as expectations of higher inflation weighed on interest rate outlook.

The May silver contract on COMEX also fell to $61.235 per ounce. 

The price of copper fell to its lowest point in over three months, reaching $11,700.50.

This decline is attributed to the conflict in the Middle East, which is dampening risk appetite in financial markets and fueling worries about global economic growth and inflation. 

However, copper reversed its losses to trade 1.6% higher at the time of writing.

The contract was last at $12,091 per ton. 

Brent plunges after Trump’s comments

Oil prices dropped by over 13% on Monday after an announcement by US President Donald Trump that he would instruct the military to delay any strikes on Iranian power plants and energy infrastructure.

At the time of writing, the April Brent crude contract was 10.2% lower at $100.74 per barrel.

At one point during Monday, prices were as high as $114 per barrel. 

Meanwhile, West Texas Intermediate crude plunged to a session low of $85.28 a barrel.

Oil prices had initially climbed on Monday as the Middle East crisis escalated after the US President issued a 48-hour ultimatum, demanding that Tehran "fully open" the Strait of Hormuz to all shipping or face the destruction of its power plants. 

This deadline was set for approximately 7:44 p.m. EDT (2344 GMT) on Monday.

In response, Iran's Revolutionary Guards threatened immediate retaliation.

They vowed to attack power plants in Israel and those supplying US bases throughout the Gulf region if Washington followed through on its threat to "obliterate" Iran's power network.

“This suggests that traders aren’t wholly convinced that any declarations of progress in negotiations between the US and Tehran should be taken seriously,” said David Morrison, senior market analyst at Trade Nation.

“But market participants should take care until there’s further clarity over what has been agreed, and by whom.”

The conflict has already caused severe damage to major energy facilities in the Gulf, virtually halting all transit through the Strait of Hormuz, a critical chokepoint that handles about 20% of the world's oil and liquefied natural gas (LNG) flows. 

Industry analysts estimate this disruption has resulted in a loss of between 7 and 10 million barrels per day of oil production across the Middle East.

Gold pares some losses

Gold recovered a portion of the losses it had seen earlier on Monday, following Trump's announcement that he would delay strikes targeting Iranian power plants and energy infrastructure. 

The price of gold has dropped significantly, falling roughly 17% since the Middle East conflict started on February 28.

This retreat represents a decline of approximately 22% from the record peak of $5,594.82, which was reached on January 29. 

The yellow metal experienced its poorest weekly performance in 43 years last week.

The June gold contract on COMEX was last at $4,462 per ounce, down 3.2% from the previous close.

The contract had fallen to $4,128 per ounce earlier in the day, its lowest level since November 25. 

Amid a strengthening dollar and growing expectations of US interest rate hikes, gold experienced a significant drop of over 8% earlier in the session. 

While gold is traditionally viewed as a long-term hedge against inflation—which is currently being stoked by rising energy prices due to the Iran conflict—higher interest rates diminish the attractiveness of the non-yielding asset.

The Middle East conflict has driven up energy prices, diminishing the likelihood of near-term interest-rate reductions by the US Federal Reserve and other central banks.

“In the three weeks since the war began on Feb. 28, bullion’s decline has been driven partly by forced selling as investors seek to cover losses elsewhere in their portfolios,” Neil Welsh, head of metals market at Britannia Global Markets said in an emailed commentary. 

Meanwhile, the May silver contract on COMEX was at $68.268 per ounce, down 2.1%.