Stocks and gold moved in opposite directions Thursday as investors reacted to a rapid escalation in hostilities in Iraq. The S&P 500 (SNPINDEX: ^GSPC ) dropped 14 points, or 0.7%, as already-nervous stock investors weren't willing to bid the market to new highs given the new uncertainty. For gold, the news had the opposite effect, with spot gold rising $12 per ounce, and the SPDR Gold Trust (NYSEMKT: GLD ) jumping 1%. Interestingly, though, the strength in gold didn't spread throughout the precious-metals complex, as platinum and palladium both fell sharply on news of a possible resolution to the South African strike that has hurt global supplies of platinum-group metals for months. Stillwater Mining (NYSE: SWC ) fell almost 10% in response.
As we saw earlier this year in the confrontation between Russia and Ukraine, the gold market often moves upward in response to the threat of military conflict. To an even greater extent than Ukraine, though, gold market participants are especially sensitive to the strife in the Middle East, as the region is a potential powder keg in which trouble in one country can easily spread to neighboring areas, as well.
The Iraqi situation also involves more uncertainty than the Russia-Ukraine conflict. Despite calls from the Iraqi government asking for U.S. military aid, there's less probability that the U.S. government or its allies in Western Europe will respond aggressively to intervene, raising the chances that what starts as a minor issue could escalate uncontrolled into a much larger threat. Oil prices have spiked higher today, as well, and inflation worries could also come into play if rising oil filters through to the costs of other goods.
Nevertheless, it's important to realize that a 1% move upward in gold is largely inconsequential, with spot gold prices of around $1,275 per ounce still representing only minimal gains on the year, and barely clawing back the tiniest bit of the gold market's losses in 2013. Unless the Iraqi situation flares into a much bigger deal, other factors are more likely to play the key role in determining the future direction of gold prices.
Meanwhile, market participants got one stark reminder today that supply and demand still plays the primary role in the precious metals markets. Platinum fell $39 per ounce, or more than 2.5%, to $1,438, while palladium dropped 4%, losing $36 per ounce to $822. The primary cause was news from South Africa, where officials representing mining-worker unions have reportedly come to an agreement in principle with mine operators that could end a strike that has lasted throughout almost all of 2014.
Stillwater Mining has benefited from the strike, which has hurt South African producers Anglo American, Impala Platinum, and Lonmin. Combined with economic pressure against Russia, which is the other major producer of platinum-group metals, Stillwater was in prime position to provide for the needs of automakers and other users of platinum and palladium with its Montana-based mining properties. Even with the drop, though, many analysts believe platinum-group metals will rebound, and that could bode well for Stillwater's longer-term prospects.
As events in the Middle East unfold, be sure to keep your eye on SPDR Gold Trust and the gold market more broadly. If gold prices start to climb toward their 2014 highs, then it might draw interest from those seeking refuge from an increasingly shaky stock market.
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