Oil prices edged higher on Wednesday after steep losses in the previous session amid uncertainty about the resumption of flows from the Strait of Hormuz.
Meanwhile, gold had hit a near one-month high on COMEX earlier in the day, but the precious metal fell slightly amid a rise in energy prices. Silver prices also dipped more than 1% after breaching $81 an ounce earlier.
Copper initially extended its gains, recovering from losses incurred during the more than six-week Middle East conflict, due to speculation among traders about potential peace talks between the US and Iran.
Although the industrial metal climbed by as much as 0.8% earlier on Wednesday, it was trading flat at the time of writing.
Oil gains
Crude oil prices fell overnight, with front-month West Texas Intermediate (WTI) plunging sharply in early morning trading to its lowest point in over two weeks, nearing $85 per barrel.
This decline was driven by a more positive market sentiment, as investors began to factor in the possibility of a diplomatic settlement to the Middle East conflict.
A second round of negotiations between the US and Iran is being considered and is likely to occur before the ceasefire deadline next Tuesday.
However, significant obstacles persist as the Strait of Hormuz remains closed to most shipping and is controlled by Tehran.
Furthermore, the effectiveness of the US attempt to blockade Iranian ports in the region is being questioned.
The situation was further complicated by a spike in oil prices during this morning’s European trading session, following reports that more US forces are being deployed to the Middle East.
The uncertainty in the market boosted oil prices on Wednesday with WTI last at $91.82 a barrel, up 0.6%, while Brent was also 0.5% higher at $95.25 a barrel.
“Overall, there’s plenty of uncertainty over the situation, even if the general expectation is that the war will soon be over,” said David Morrison, senior market analyst at Trade Nation.
Gold reverses gains
Gold reached its highest point in almost a month early this morning, hitting $4,895.40 an ounce on COMEX, although it has dropped back down since then.
A slight rebound in the US dollar has put downward pressure on gold prices. On Tuesday, the dollar index hit a six-week low. This was a result of investors continuing to reverse their ‘flight to safety’ positions, as they are increasingly confident that the conflict between the US/Israel and Iran will soon conclude.
A combination of short-covering and heightened tensions—following a Washington Post report that more US forces are heading to the Middle East—led to the dollar index rebounding this morning, according to Trade Nation’s Morrison.
“It’s now all about how gold behaves around $4,800. If it can push back and dig in above here, then that will encourage the bulls,” Morrison said.
But a protracted break below this level may lead to some profit-taking, following the gains made over the last three weeks.
After briefly surging above $81 per ounce to reach a four-week high, silver prices have since consistently pulled back. This decline mirrors gold’s performance and accelerated in London mid-morning after dropping below the $79 mark.
Analysts believe that the area around $80 per ounce is significant for silver.
“If it can break and hold above here in the near term, then this may encourage some fresh buying, particularly as the daily MACD suggests that upside momentum may be building,” Morrison added.
“But a failure to do so could easily, as with gold, encourage some profit-taking. That could lead to a retest of support around $70.”
Copper and aluminium
The three-month copper contract on the London Metal Exchange was at $13,273.63 per ton, largely unchanged from the previous close. The aluminium contract was 0.3% lower at $3,575 per ton.
Aluminium was also trading higher earlier on Wednesday, much like copper.
“Most base metals have been whipsawed since the conflict erupted, with prices initially falling due to concerns over the impact of supply chain disruption and slowing economic growth,” Neil Welsh, head of metals at Britannia Global Markets, said in an emailed commentary.
Risk appetite returned after a temporary ceasefire was agreed last week, and has been reinforced by reports Washington and Tehran are looking to arrange a second round of talks in the coming days, along with signs of Chinese demand.
According to Trafigura analyst Henry Van, a significant global energy shock is expected to temporarily curb copper demand.
However, speaking at an industry conference in Santiago on Tuesday, Van argued that this shock will ultimately accelerate the metal’s long-term growth as economies increasingly shift towards electrification.
He characterised the disruption stemming from the war in the Middle East as one of the most serious energy crises in decades. Van noted that the crisis’s impact will differ regionally, with China being relatively better protected than most economies.
This resilience is attributed to China’s substantial investment in electrification and its lower dependence on oil and natural gas within its energy portfolio.
This divergence is expected to solidify China’s position in global manufacturing and, consequently, its copper demand.
Van argued that despite immediate challenges, the current crisis is actually strengthening the underlying factors driving copper consumption by speeding up the transition from oil to electricity-based systems.
He refuted the idea that the energy transition is decelerating, pointing to sustained expansion in essential sectors.
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