World markets were taken by surprise by the announcement of a deal between Iran, the U.S., Russia and the EU regarding Iran’s uranium enrichment program. Equities climbed and the dollar strengthened on the news, while oil and gold were pressured.
However, what was looking like a day near 4.5-month lows close to the all-in cost of production for the yellow metal was suddenly reversed soon after the New York open. Gold spiked $15/oz to near the $1.245 level, even while the DXY dollar index was up a strong .35%. Silver and palladium also saw a boost from gold’s strong rebound.
The Iran deal will help European companies, notably French automakers Peugeot and Renault, as well as South Korean car maker KIA. Yesterday’s deal allows Iran to import cars, trucks and automotive parts, as well as spare parts for its dilapidated civilian airlines. It also suspends further sanctions on oil exports, allowing Iran to export up to 1 million barrels of oil a day to its few remaining customers, which include China, Japan, India, Turkey, and South Korea. This is approximately 1/3 of Iran’s peak oil capacity. While oil prices dropped on news of the deal, analysts in the industry said that the effect on the markets is mostly psychological, since Libya’s oil exports have nearly ceased amid armed clashes between the army of the post-Ghadaffi government and armed rebels. Oil sanctions in the EU and U.S. will remain in effect.
With the lifting of sanctions against importing gold, Iran can once again accept gold from Turkey in payment for oil and natural gas. This dovetails nicely with Turkey’s recent successful efforts to get its people to deposit their hoarded gold in banks. Iran will get access to about $7 billion in frozen overseas assets, from a total of over $100 billion.
China used the opportunity of all attention focused on the Middle East to declare a “naval and air defense zone” over Japanese-held Senkaku islands in the East China Sea that has been a point of contention between the two nations, with them both claiming ownership. Whoever owns the little uninhabited islands, also owns the oil and fishing rights around them, which is the real prize. U.S. Secretary of Defense Chuck Hagel issued a warning to Beijing that America would militarily support Japan in any armed confrontation that resulted from this act. China demanded an apology from the U.S. over these remarks.
In economic news, the Nikkei stock index closed at a six-month high, as exporters were helped by a still-plunging yen. The yen hit a six-month low against the dollar and a four-YEAR low against the euro. Euro stocks also saw gains.
Wall St. opened higher after hitting all time highs last week, but settled down to near unchanged.