ETFs targeting gold, oil and other commodities surged on Tuesday, while stocks fell and bonds rose as financial markets moved to a risk-off mode amid rising U.S.-Syria tensions in the wake of reports that the Syrian regime used chemical weapons against its own people.
While the true picture in the Middle Eastern country is hard to ascertain, the grim events there force the Obama administration to carry out some sort of attack against Bashar Assad’s embattled regime. If it’s clear that Assad did kill his own people and Obama does nothing, it would be viewed as weakness by other rogue states such as Iran and North Korea, according to Stratfor, the geopolitical consultancy.
So the market is bracing for some sort of U.S. attack—perhaps as early as this week—with petroleum leading the charge, given that Syria is on the perimeter of the world’s biggest oil-producing region. The United States Oil Fund (NYSEArca:USO), a future-based ETF that owns front-month Nymex crude contracts, closed 2.5 percent higher at $38.90 a share, or more than it’s been in more than a year.
Gold wasn’t far behind, with the SPDR Gold Shares (GLD) ending about 1 percent higher at $136.72 a share—up almost 20 percent from a low in June, but still 15 percent below the $162.02 level at the end of last year.
“Commodities are up across the board,” said Sumit Roy, analyst and managing editor of HardAssetsInvestor.com. “But it’s premature to say that gold has returned to some kind of a bull market.” A story in MarketWatch suggested as much, and Roy rejected that conclusion.
Still, financial markets were doing exactly what they do in times of heightened geopolitical tension; namely, they reflect something of a worst-case scenario.
Investors were thus flocking to time-tested safe havens, such as the U.S. Treasurys market. Yields on benchmark Treasurys dipped 5 basis points to 2.75 percent, after sliding 5 basis points on Monday.
Last but not least, stocks were tanking on the prospect that a U.S. attack on Syria was leading the global economy into another round of uncertainty at a critical time of transition five years after the financial crash.