The recent easing of oil and gold prices followed reports of an attack that Iranian authorities seemed to downplay. Initially, Brent crude, the international benchmark, surged to over $90 a barrel, but later retreated to around $87 after Iranian state media claimed that there was "no damage" in Isfahan province, where reports of explosions had surfaced.
Concerns about a potential escalation of conflict in the Middle East have kept investors on edge, particularly regarding the impact on oil supplies. The initial spike in oil prices, which reached as high as 3.5%, has raised worries about inflation, as sharp and sustained increases in oil prices can contribute to higher costs of living worldwide.
Randeep Somel, a fund manager at M&G Investment Management, highlighted the inflationary concerns, noting that while inflation rates have been slowing, they remain above targets in some regions. In the UK, where inflation is around 3.2%, policymakers are monitoring the situation closely, with a potential interest rate cut not expected until later in the year.
Despite the recent fluctuations, the price of Brent remains below the levels seen after Russia's invasion of Ukraine in February 2022, when oil prices hit $125 a barrel. The ongoing tensions in the Middle East have also led to concerns about disruptions to shipping through the crucial Strait of Hormuz, a vital route for global oil supplies.
The initial market reaction reflected fears of renewed conflict between Israel and Iran, highlighting the fragility and volatility of the situation in the Middle East. Stock markets reacted mixedly to the developments, with US indices showing mixed movements and Asian markets experiencing declines, while the UK's FTSE 100 closed slightly higher.
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