Oil has joined the wave of risk aversion crashing over markets this morning, as Donald Trump edges closer to winning the US presidency.
Brent crude, the international marker, dropped as much as 3.6 per cent to the lowest since August, hitting $44.40 a barrel, while US benchmark West Texas Intermediate fell more than 4 per cent to a low of $43.07.
Other commodities were also under pressure with the majority of base metals, from copper to zinc, declining by between 1 and 2 per cent.
Gold was the outlier, gaining as much as 4.9 per cent to a high of $1,337.40 a troy ounce, its loftiest level since September, as investors looked to traditional safe haven assets like precious metals.
“Well it seems that the markets have for once done as predicted,” said Malcolm Freeman, director of Kingdom Futures, a metal broker. “As Trump edges very close to the winning line and gold rallies … all the [base] metals have entered into a sell off phase and the Chinese funds have stayed away from the market so far.”
At 06:38am London time, Mr Trump was on 264 electoral college votes to Hillary Clinton’s 215. The Republican candidate has won swing states such as Florida and Ohio and Pennsylvania, putting him within touching distance of the 270 total needed to secure the presidency.
Investors had largely positioned ahead of the election for Mrs Clinton win, but were sideswiped by the US electorate that looked set to hand Mr Trump victory.
“Gold’s jump shows the shock hitting financial markets worldwide,” said Adrian Ash of BullionVault, a UK-based online gold exchange.
He noted gold’s overnight advance had lagged behind the post-Brexit jump but that could change. “A Trump victory today is only where the uncertainty and panic in other assets begins.”
S&P 500 futures fell 5 per cent, triggering an automatic trading halt designed to curb excessive moves. The Mexican peso suffered its biggest one-day fall in more than 20 years, dropping more than 13 per cent to a record low of 20.7 against the dollar.
Wayne Gordon, a commodity and currency strategist at UBS in Singapore, said that a Trump victory could lead to a period of risk aversion in commodities lasting several days, but the underlying fundamentals of the market would not be significantly altered in the short term.
“For clients concerned about risk we’ve been recommending they buy gold, as it performed well in the immediate aftermath of Brexit,” Mr Gordon said.
“But this is really a risk-off move rather than a broader change in the underlying fundamentals of these commodities. Both candidates are pro US growth.
“When the dust settles here we’re still likely to have a deficit of oil from the second half of next year; and the drop in oil prices — and broader economic uncertainty — may actually force greater co-ordination in Opec ahead of their meeting later this month. This may make it more likely that they formulate a deal.”
Oil prices have fallen more than 15 per cent since hitting a year-high of $53.73 a barrel in early October, shortly after Opec reached a provisional agreement to cut oil production and try and speed the rebalancing of a heavily oversupplied market.
Hedge funds and other investors have been losing faith in Opec’s ability to secure the deal, however, with members such as Iraq raising objections over how their production is assessed, while Nigeria and Libya’s strife-hit output has recovered in recent weeks.
Key for many commodities in the coming weeks could be the response of the dollar, with many of them priced in the US currency. The euro rose 1.75 per cent against the dollar.
Mr Gordon at UBS cautioned that while the dollar was under pressure on Wednesday morning, if markets remain volatile it could start to benefit if investors flee from riskier assets.
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