The recent surge in violence in the Middle East has once again brought safe haven markets into the spotlight, with a particular focus on crude oil and gold.
Last week, WTI crude oil experienced a notable 6% increase in value from Friday to Friday, despite a decrease in total open interest. Meanwhile, December COMEX gold registered a 5.5% gain, with its open interest seeing an upward trajectory throughout the week.
On October 7, the Palestinian organization Hamas initiated an attack on Israel, setting off a conflict that continues without an apparent end in sight. Amidst the humanitarian crises and global concerns, this article delves into how these traditional ‘safe-haven’ markets respond and what the future might hold.
Safe haven markets can be thought of in two ways: as a hedge in times of market turmoil to protect investments in other susceptible sectors or as an investment opportunity to enhance portfolios in various market sectors. These “Three Kings of Commodities” – Corn, Soybeans, Gold, and Crude Oil – have often acted as safe havens or investment opportunities during different types of global market unrest.
Corn takes center stage when North American weather threatens production, mainly in the United States. Soybeans become the focal point when South America faces weather-related issues. Gold, a precious metal with a long history, is a traditional go-to option for investors during times of global upheaval. Crude oil, over the past five decades, has emerged as a safe haven market due to its vital role in the world economy. However, the instability of the Middle East, a major oil-producing region, continues to pose risks.
The discussion in recent days has centered around whether gold or crude oil serves as the better safe haven investment amidst the Israel-Gaza situation. Initial reactions suggest that crude oil might capture more immediate attention, given its global significance. On October 5, the WTI crude contract (CLX23) closed at $82.79, marking a 5.4% increase from the previous week. The spot-month contract rallied to a high of $87.83, demonstrating a 6% gain.
Despite these indicators pointing to WTI futures as a safe haven, a shadow of doubt emerges due to the decrease in total open interest from one week to the next.
Turning to gold, the December issue (GCZ23) closed the week up 5.5% at $1,946.20. Although WTI outperformed gold slightly based on price, other factors suggest that gold was the preferred safe haven. Gold maintained an upward trajectory throughout the week, with only a minor dip on Thursday. Furthermore, total open interest in COMEX gold increased during the week, whereas it decreased in WTI crude oil.
In conclusion, determining the better safe haven market amid global turmoil seems to be a toss-up. Those willing to tolerate more volatility may favor crude oil, while those seeking a safer option may turn to gold. As for Bitcoin, often considered a “new age” safe haven, experienced a 4% loss during the week.
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