Oil, gold to gain on Syrian strikes, Russian retaliation in focus
LONDON (Reuters) – Gold and oil will extend their gains on Monday, albeit modestly, when the markets open for the first time since Western powers launched a missile attack on Syria. But equities and bonds are unlikely to suffer big losses unless the West strikes again or Russia retaliates.
“The news flow is actually better than what it looked like at one point during last week, as the strike was surgical, followed by a pullback,” said Salman Ahmed, the chief investment strategist at Lombard Odier investment managers in London. “Reports show a lot of care was taken not to hit Russian targets, which is a good sign, and the market should take heart from that.”
Gold has benefited in recent days as a safe-haven asset amid a US-China trade dispute and the escalating conflict in Syria, which also pushed oil above $70 per barrel due to concerns about a spike in Middle Eastern tensions.
World stocks wobbled last week but still ended with the best weekly gain in more than a month, as investors await potentially healthy company earnings in the US.
Despite heightened geopolitical risks, the impact on so-called safe-haven assets has been short-lived and modest. While the yen rose initially on fears of a Syrian strike, it ended near seven-week lows to the dollar last week.
On Saturday, US, French and British missile attacks struck at the heart of Syria’s chemical-weapons program in retaliation for a suspected poison-gas attack a week ago. The assault appeared unlikely to halt Syrian President Bashar al-Assad’s progress in the seven-year-old civil war.
The bombing, denounced by Damascus and its allies as an illegal act of aggression, was the biggest intervention by Western countries against Assad and his powerful ally Russia.
But the three countries said the strikes were limited to Syria’s chemical-weapons capabilities and not aimed at toppling Assad or intervening in the civil war.
Think Markets chief market analyst Naeem Aslam said gold was poised to gain on Monday, but the rally would not be very steep. “The focus will be on the counterreaction from Russia,” he said.
Gold, often used as a store of value in times of political and economic uncertainty, could rally toward $1,400 per ounce after two consecutive weeks of gains.
“If we do break above $1,365... we would be very bullish,” Aslam said.
Others were less convinced of the market’s ability to gain much further ground.
“I think the strikes were well targeted, and as such, gold-market impact will be minimal, as it will be hard to justify a major retaliation,” said a trader at a leading bullion bank.
Tokyo will be the first major market to open on Monday, and the yen will likely strengthen against the dollar but not beyond 106.50, Toshima & Associates market analyst Itsuo Toshima said, adding that he did not expect stocks traders to take drastic moves.
“The first attack was within expectations and was already priced in the market... However, if there is second round of strikes, that is not in line with expectations,” Toshima said. “So that should prompt a sharp risk-off move in markets. Stocks will plunge; the yen and the oil prices will surge.”
Frank Benzimra, the head of global markets for Asia Pacific at Societe Generale Corporate and Investment Banking, also said stocks were set to plunge only in case of new strikes by Western powers.
In case of such an escalation, energy-related assets should outperform Asia markets, oil would rally further, the yen would spike, and Japan’s domestic defensive stocks would outperform international stocks, he said.
“For the stress on Asia equity markets to be sustainable, we would need to have oil prices spiking to such a level that fundamental concerns, i.e. higher inflation and risks on growth, return to the market,” Benzimra said.
Energy Aspects analyst Amrita Sen said despite Middle Eastern tensions and looming new US sanctions on Iran, she believed oil has outperformed most expectations this year and may have rallied too far too fast.
“We are likely to get a sell-off this week, as the extent of the Syrian strikes have been muted and, in general, calmer nerves prevail in Washington,” she said.