Alongside the devastating human cost, the war in the middle east has once again shown how quickly conflict can spill into commodity markets.
Oil and gold get the headlines, but the ripple effects go much wider.
Gold slipped, strategic metals marched on
When war broke out in the Middle East, most people expected the same old script.
Oil jumps, stocks fall, and gold rallies.
Two out of three, check, but this time, the script went a bit off piste.
While gold has come under pressure, several strategic and technology metals have continued to rise in March:
– Indium rose 2.15% in February and 11.70% in March.
– Praseodymium rose 29.62% in February and 10.40% in March.
– Neodymium rose 28.78% in February and 11.30% in March.
– Germanium rose 35.89% in February and 1.09% in March.
– Rhenium rose 17.19% in February and 1.54% in March.
That is worth dwelling on.
When geopolitical tension flares, gold is supposed to be the obvious winner. Yet despite the war, gold has softened rather than surged.
The reason is that gold does not trade in a standalone vacuum.
Higher oil prices have fuelled inflation fears, rate cut expectations have weakened, the dollar has strengthened, and leveraged positions have been unwound.
In fact, March marks the largest monthly sell-off of commodity ETFs ($11bn) since bloomberg began measuring this in 2005.
$7bn of which relates to gold.
So instead of behaving like a perfect safe haven, gold has been pulled back into the wider macro picture.
That does not mean the long-term case for gold is broken. Far from it. The outlook still looks constructive over the bigger picture, and there are still bullish forecasts doing the rounds.
But it is a useful reminder that gold is not a magic button you press whenever the world looks unstable.
Strategic metals are different.
They are not bought simply because investors feel nervous. They are bought because industry needs them.
Some of the metals are clearly linked to defence, while other materials that were not always viewed primarily through a defence lens are now attracting more attention for exactly that reason.
Neodymium and praseodymium are usually talked about in the context of EVs and high-performance magnets, but their use does not stop there.
They also support defence applications through the powerful permanent magnets used in guidance, targeting and sensor systems.
Germanium follows a similar pattern.
Best known for fibre optics and electronics, it also supports the infrared and thermal tracking capabilities used in advanced missile guidance and detection systems.
In short: the war has shown that, against a backdrop of wider macroeconomic forces, gold will not always move in the way investors expect.
Nor does it have any fixed correlation with rare earths and strategic metals.
The different trajectories of these commodities reinforces the importance of diversification.
So why not look beyond some of the usual suspects when building a commodity basket?
Russell Gous
Head of Investor Relations
