Commodity markets surged as military clashes between Israel and Palestinian Islamist group Hamas raised fears that a wider conflict could affect oil supply from the Middle East and boosted demand for safe-haven assets such as gold. There is the potential for the conflict to worsen, which would cause more shock across commodity and equity markets. Crude oil prices rose by about 4%, spot gold and benchmark copper climbed to one-week peaks, while several other commodities including natural gas, sugar and wheat are also higher.
The attack on Israel by Hamas may push the region to war, increasing geopolitical risk bid into crude.
Hamas on Saturday October 07, launched the largest military assault on Israel in decades, triggering a wave of retaliatory Israeli air strikes on the Palestinian enclave of Gaza. The eruption of violence threatens to derail U.S. efforts to broker a rapprochement between Saudi Arabia and Israel. Saudi officials reportedly told the White House that they were willing to raise oil output next year as part of the proposed Israel deal.
There are a lot of questions about what could happen next in the Middle East but if the situation escalates gold prices could move towards $1,900, as Gold is considered a safe store of value amid political and economic turmoil.
Copper prices rose to a one-week high but further gains were seen unlikely due to generally weak demand in top consumer China, a strong dollar, and rising inventories.
Wheat prices on the Chicago Board of Trade were also buoyed by fears the conflict could spread and were up 0.75%l.
Conflicts in the Middle East generally mainly hit energy markets, but we are seeing an impact on other commodities today. Raw sugar prices rose by about 1%. Sugar prices are often influenced by trends in energy markets as cane be used to produce sugar and biofuel ethanol, particularly in top producer Brazil.
