LONDON, 23 March 2003 — Oil prices plummeted this week after the United States ditched diplomacy and embarked on a long-awaited war in Iraq that triggered a partial reversal of safe-haven flows out of commodities and into stocks.
Oil prices lost almost one-fifth of the their value as traders banked on a swift war without major supply shortfalls on world markets. “Traders have taken the event of the last Gulf War in 1991 as a template, when oil prices fell hugely two days after the war started,” said Matthew Parry, an analyst with the Economist Intelligence Unit, the research arm of the London-based newspaper. “Maybe some traders have moved away from the commodity sector into the stock markets. But the commodity sector is still seen as attractive and safer for investments as it never falls or rises as much as the stock markets do.” he said.
Gold prices thus held fairly stable, slipping slightly, as investors remained nervous about how the war would unfold.
Gold: Gold prices slid back yet further after tumbling the previous week, although the decline steadied as the market generally chose to watch and wait for developments in Iraq. On Friday, the precious metal had dipped to $333.50 per ounce on the London Bullion Market from $350.20 the previous week. “Gold is going to be determined by the war in Iraq now, just like the other commodity markets,” said SG Securities analyst Stephen Briggs.
Few investors opted for the safe haven of gold on Thursday’s outbreak of hostilities with Iraq, working on the widely held market assumption that the conflict would result in a swift victory for US-led troops.
This mood was in contrast to months of pre-war worry which had pushed prices upward, analysts said.
“We have got to see all this in the context of the last six months. As the uncertainty built up to this head of frothy speculation, everyone and their grandmother was buying gold,” said HSBC analyst Merlin Marr-Johnson.
Around the time of the previous Gulf War in 1991, gold prices fluctuated wildly, spiking up to above $400 per ounce briefly before slumping more than $40 as US-led forces drove Iraqi troops out of Kuwait.
Silver: Silver fell back slightly along with gold. Although the metal suffers from bad fundamentals “it is a bit of a surprise that it had done so badly,” said Briggs.
Nonetheless, he added: “It is hard to see it coming back up.” Silver was trading on the London Bullion Market at $4.4025 an ounce on Friday against $4.5400 a week earlier.
Platinum and palladium: Platinum prices slid back further after hitting 22-year highs during the week before, again reflecting the sentiment toward gold. On Friday, the price of an ounce of platinum stood at $662 on the London Platinum and Palladium Market from $688 the previous week.
“The fact that the market seems to think the war is going to be simple has finally affected platinum as well,” said Briggs.
The metal had held up much longer than gold due to much better fundamentals, said Briggs. “But even when the war is out of the way, platinum will remain supported by tight supplies,” he added.
Palladium prices traded at $226.0 per ounce from $232.50.
Base metals: Base metals prices traded in a narrow range, capped by a stronger US dollar and concerns about the impact of the war in Iraq on the global economy. BNP Paribas analyst Charles Kernot said that most base metals had been confined to a narrow trading ranging owing to uncertainty over the situation in the Gulf. “The relative strength seen in the US dollar has put a cap on the dollar prices of these commodities. Currency factors are probably the most important,” he said.
Trading volumes were low as market participants waited for fresh clues on how the war would play out and what impact it would have on the global economy and hence demand for base metals.
“Trading in base metals remains extremely thin, market participants remaining on the sidelines due to uncertainty over the post-war outlook and with low volumes exacerbated by (Friday’s) Japanese holiday,” said Barclays Capital analyst Ingrid Sternby.
On the London Metal Exchange (LME), three-month copper prices rose to $1,704 per ton from $1,635 the previous week.
Three-month aluminum prices dipped to $1,386 per ton from $1,390. Three-month nickel prices climbed to $8,300 per ton from $8,270. Three-month zinc prices held steady at $809 per ton. Three-month tin prices firmed to $4,660 per ton from $4,540. Three month lead prices sagged to $468 per ton from $474.
Oil: Oil prices plunged by about 18 percent after news that the United States had abandoned diplomatic efforts to disarm Iraq triggered a slump that gathered pace as US-led forces rolled into Iraq meeting little initial resistance.
The price of benchmark Brent North Sea crude oil for May delivery fell to $24.80 a barrel in late London trading on Friday from $30.13 a week earlier.
In New York, April-dated light sweet crude futures fell to $27.20 from $33.36 the previous week.
Rubber: Rubber prices bounced up to new six-year highs on concerns about a supply shortfall.
In Kuala Lumpur, the RSS index rose to 4.025 ringgit per kilo from 3.830 the previous week.
