Not Just Oil: Threat Of War Fuels Surging Aluminum, Gold Prices As Experts Warn Inflation ‘Shock’ Could Tank Stocks

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Topline

As escalating tensions between Russia and Ukraine pushed oil prices to seven-year highs Tuesday, the threat of military conflict in the region also fueled strong price gains for a slew of other commodities, prompting some analysts to warn that an inflationary surge sparked by the crisis could dampen the broader market.

Workers fill a crucible with molten gold during the casting of gold ingots at a non-ferrous metals … [+] plant in Russia.

Key Facts

The price of U.S. oil benchmark West Texas Intermediate jumped nearly 3% to about $94 a barrel on Monday, while the United Kingdom’s Brent Crude climbed about 2% to $97, extending gains to 9% this month and reaching the highest level since September 2014.

Prices started climbing Monday after Russian President Vladimir Putin ordered troops to march into two pro-Russian separatist enclaves in eastern Ukraine, with the surge intensifying early Tuesday after German Chancellor Olaf Scholz announced measures to halt approval of Nord Stream 2, the $11 billion undersea natural gas pipeline connecting Russia to Germany.

Rising geopolitical tensions are “further amplifying” commodities prices across the board, JPMorgan analyst Natasha Kaneva wrote in a Tuesday morning note, pointing out Russia’s “far-reaching impact” as one of the world’s largest oil and metals producers.

Surging alongside oil Tuesday morning, the price of aluminum jumped as much as 3% to about $3,380 per tonne, nearly touching an all-time high set in 2008, while nickel hit a nearly 11-year high of $24,870, climbing 2%.

The Russia-Ukraine crisis has also “sparked a rally” in precious metals, analyst and Sevens Report editor Tom Essaye wrote in a note to clients, pointing out gold prices have surged to eight-month highs in recent days, while silver prices are up about 8% this month.

Not everyone’s convinced the rallies will be long-lived: UBS Investment Bank’s Joni Teves told CNBC on Monday that gold prices should plummet about 15% by year’s end as the Federal Reserve starts hiking interest rates, while Bank of America analysts said Tuesday that oil prices should drop by $2 to $4 if geopolitical tensions de-escalate.

Key Background

Rising energy prices helped push inflation to its highest level in nearly 40 years, and stocks have struggled in recent months as Fed officials work to combat the surge by unwinding the central bank’s pandemic-era stimulus measures. Last week, analysts at Coamerica Bank said the degree and extent of conflict between Russia and Ukraine could “exacerbate” inflation and impact the intensity of the Fed’s looming interest rate hikes, calling a 10% pullback in major stock indexes “conceivable.” JPMorgan analysts warned $150-per-barrel oil prices could temporarily end hopes that consumer prices will moderate in coming months and instead keep annualized inflation above more than 7%.

Crucial Quote

“Russia-Ukraine tension is a low earnings risk for U.S. corporations, but an energy-price shock amid an aggressive central bank pivot focused on inflation could further dampen investor sentiment and growth outlook,” JPMorgan analysts led by Dubravko Lakos-Bujas wrote in a Tuesday morning note, pointing to the aggressive monetary policy that would likely result as the “key risk” for stocks going forward.

What To Watch For

Looming sanctions. In a statement Tuesday morning, White House Press Secretary Jen Psaki said the president “welcomed” Germany’s announcement that it would halt approval of Nord Stream 2 and said the White House would follow up with its own measures Tuesday, tacking on to a set of actions announced Monday. Meanwhile, the U.K. declared that it will hit Russia with a “first barrage” of economic sanctions, while the European Union will also decide on Russian sanctions Tuesday.