Economist Robin J. Brooks stated that the possibility of renewed hot conflict with Iran is being increasingly priced into global markets, noting that this effect is most clearly visible in oil prices.
According to Brooks, while Brent crude is approaching levels last seen when the Strait of Hormuz was closed, the return of oil exports from the Persian Gulf to pre-war levels signals a normalization on the supply side. Nevertheless, there is still a high geopolitical risk premium in prices.
The economist calculates the fair value of Brent crude at approximately 90 dollars per barrel. Noting that December 2027 futures contracts are also trading at this level, Brooks states that the risk premium stemming from the possibility of hot war in current pricing is over 25 dollars.
INVERSE MOVEMENT IN PRECIOUS METALS
According to Brooks' analysis, the rise in oil prices has recently been putting pressure on gold and silver. The 30-day rolling correlation between the daily price changes of Brent crude and those of gold and silver shows that the two precious metals react in the opposite direction to the increase in oil prices.
While gold fell 3.7 percent on Friday, dropping significantly below 4 thousand dollars for the first time this year, the decline in silver was 5.9 percent. Brooks stated that this movement is consistent with the price relationship observed since the Iran war began.
Based on price movements in the second half of October, Brooks' calculations suggest that a 10 percent rise in Brent crude front-month contracts could point to a decline of approximately 4 percent in gold prices and approximately 8 percent in silver prices.
However, Brooks is of the opinion that these estimates may exaggerate potential losses in precious metals. He cites as reasons both the already high war premium in oil prices and the fact that gold and silver have been more sensitive to oil in the last two weeks of October than in normal periods.
According to Brooks, the probability of a new, sustained 10 percent increase in oil above current levels is limited. Furthermore, the fact that expectations regarding the conflict have been priced in by the market more than in the previous period reduces the likelihood of a repeat of sharp precious metal declines like those seen in early 2026.
According to the analysis, if the period of uncertainty ends, a recovery could be seen in gold and silver again. Therefore, it is noted that although the pressure from oil continues, the movement in precious metals could change direction depending on the perception of geopolitical risk.
News Source: 12punto
