Once again the internet is awash with misinformation on how metals and particularly miners have reacted to the war in the Middle East, and reasons behind their mixed performance.
As the news broke during the weekend the markets were closed so it was no real surprise to see , and spike on the day they reopened with stock markets generally pointing south. In order to understand the metals, one must consider how Crude Oil has a very large correlation.
Firstly, oil prices have been averaging in the low 60’s for a considerable while, and the simple reason is the market is saturated with a glut of supply with Opec + stating toward the end of 2025 that production would be increasing.
Some 20% of the world’s supply comes through the Gulf of Oman so strategically this is an issue. Saudi Arabia is already making plans to use its ports on the Red Sea coast to ship tankers to supply the world. The US is also promising to escort all ships through the Gulf – despite the majority of supply heading in the direction of its non allied countries which is a robust plan to counter Iran’s threat of blockade.
If we consider the price spikes of previous middle eastern events, Crude Oil has almost always followed a decline lower than the price before the spike occurred. Given the plans above, we do not see anything other than a repeat of this – also given that other Opec countries have already stated intentions to increase supply fearing a supply shock.
Another indicator that this will be short lived is the media. From the moment the first missile was fired there was talk of $100 + per barrel, and when the mainstream hear this the retail investors think it’s easy money and buy oil derivatives while the professional short it at the open, and win.
So why is Oil related to Gold and Silver? Well the initial spike higher is through the fear trade, the safe haven buying until the path becomes clearer. Yesterday they got slammed back past their initial price prior to the market open and the reason is simple – margin calls. It isn’t because war has created less demand, it isn’t because Crude Oil prices are going higher forever and that affects miners’ costs, and it isn’t because the US dollar is a bigger safe haven – all of which I have read in the last 24 hours from some very lazy analysts.
Paper traded Silver and Gold are liquid. When stock markets collapse the path of least resistance is taking computer screen liquidity from your best performing assets. It happens in every quick down day since markets began. Silver and Gold have experienced enormous gains in the last 12 months for many reasons and crucially these reasons still exist.
If President Trump is correct and this will last no more than five weeks then more volatility in the aforementioned commodities in the next week or so is possible until markets have worked out how this ends and we go back to more stable prices and the fundamentals resume as you were.
For Gold and Silver that is a huge shortage of physical supply, inflation hedges, loss of faith in fiat currency and the debt crisis to name a few. For Crude Oil it is an oversupply, both of which will send the price of mining stocks substantially higher and for longer.
War creates volatility, and price spikes or dips that result are non organic movements that are more often than not short term. I fully expect Crude Oil to go below $60 a barrel once this is all resolved and I fully expect Silver, Gold and miners to make new all time highs before the end of Q2.
