NEW YORK (Best Credit) -- Volatility in commodities markets is increasingly significant as geopolitical tensions, especially in Iraq and Ukraine, fail to recede from the financial headlines. During these types of discussions, most attention tends to center around gold and precious metals.
That's why we see more discussion of the SPDR Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV) in cases like the Ukraine upheaval, where investors struggle to move into safe-haven assets. Commodities are generally considered to be a stable store of value during times of broader economic uncertainty, and geopolitical events can drive investors to make major changes in their portfolio strategies in order to compensate for the changing world landscape.
The latest example of these types of tendencies can be seen in oil. Both Brent and West Texas Intermediate (WTI) oil have hit their lowest levels in two weeks. But the reactions here might seem counterintuitive, given the fact that tensions in the Middle East usually result in frantic buying of energy assets on the expectation that supply constraints will follow. In the latest news out of Iraq, we have seen some significant changes in market trends.
But the ultimate result might be somewhat unexpected, as heightened oil production in the U.S. could serve as an appropriate counterbalance to the effects of sustained military turmoil in the Middle East.
Supply, Demand and the U.S. Dollar
As we move forward, investors will need to account for these factors before making knee-jerk investment reactions to seemingly related news headlines. Turmoil in the Middle East is generally thought of as bullish for oil and its correlated assets, like the United States Oil Fund LP ETF (USO). But many investors could be surprised if they follow the historical "textbook rules" and simply buy oil every time the topic is mentioned in the financial media.