A ceasefire agreement between Israel and Iran, facilitated by the Trump administration, has led to notable declines in both oil and gold prices during early Asian trading hours. Gold prices slipped to their lowest point in nearly two weeks, settling around $3,340. Meanwhile, leading oil benchmarks saw sharp drops of over 5 percent each.
Market Movements: Oil and Gold Retreat Due to Israel-Iran Conflict
Brent crude futures fell by 5.3 percent, reaching $67.66 per barrel, while US West Texas Intermediate crude dipped 5.5 percent to $64.76 per barrel. Gold also experienced a decline of more than 1 percent.
At the same time, the US dollar, typically viewed as a safe-haven currency during periods of uncertainty, weakened considerably.
Commenting on the volatility, Kathleen Brooks, Research Director at XTB, noted that Brent crude prices fluctuated widely between $66 and $73 per barrel within the day. She highlighted that gold lost $45 per ounce, and the US dollar, which had been the preferred safe haven, became the weakest among G10 currencies. Brooks remarked that the market was reacting swiftly to the ceasefire news, but risk sentiment remained highly sensitive to new developments.
Geopolitical Context: The Importance of the Strait of Hormuz
Iran is the world’s seventh-largest oil producer and controls the strategically significant Strait of Hormuz, a narrow waterway between Iran and Oman that handles 20 to 30 percent of the world’s oil and gas shipments.
Following Israel’s initial strike on Iran a week ago, oil prices surged by 8 percent amid concerns over a possible blockade of the Strait. Despite these fears, Iran refrained from closing the channel, even after the US targeted three of its nuclear facilities with bunker-buster bombs.
Oil prices continued to fall after Iran responded by striking a US air base in Qatar, an action that reduced the perceived risk of a blockade. The downward trend accelerated after President Trump announced the ceasefire on his Truth Social platform.
Brooks explained that the sharp drop in oil prices signaled the market’s confidence in the ceasefire agreement. She pointed out that Brent crude had climbed nearly 20 percent over the past month due to the risk premium associated with the conflict, which was now being reversed. However, she cautioned that renewed doubts about the ceasefire’s durability could quickly push oil prices higher again.
Market Stability Amid Ongoing Concerns
Despite the ongoing conflict in the Middle East, broader market indicators remained relatively stable. The VIX, a key measure of market volatility, did not experience a significant spike, and stock markets were largely unaffected.
The Eurostoxx index was the most impacted, dropping more than 2 percent over the past week. In contrast, US stocks managed to post gains. Brooks observed that markets reacted more strongly to US trade tariffs than to geopolitical risks, suggesting that economic factors currently outweigh geopolitical concerns for investors.