The strong victory of the Democrats in the U.S. midterm elections has significantly impacted global markets. This outcome has directed investors towards hopes of reducing tensions between the U.S. and Iran, particularly regarding oil prices. Brent crude oil prices have recently dropped nearly 9% and have fallen below $100 per barrel.
Decrease in Oil Prices and Increase in Gold
While oil prices have decreased by about 20% since the beginning of the week, this drop may represent the largest weekly decline since April 2020. The main reasons for this decline are hopes for reduced political and military tensions in the Middle East, especially concerning Iran. Traders believe that the Democrats' victory will enhance their political power and may make former President Donald Trump more cautious about continuing conflicts.
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In contrast, gold prices have significantly increased. Each ounce of cash gold rose by 1.7% to $4,130 and even reached $4,146 in some trades. These prices have rarely been seen since October 20. On Wednesday, gold prices also increased by nearly 3.4%, indicating high demand for this precious metal.
Economic Impacts and Financial Markets
The relationship between oil and gold prices is directly related to concerns about inflation and interest rates. A decrease in oil prices means lower energy costs, which can reduce inflationary pressures. In this situation, investors expect interest rates to decrease, which is favorable for assets like gold. Additionally, the weakening of the U.S. dollar and declining Treasury yields have increased gold's appeal to investors.
Ole Hansen, the commodity strategy manager at Saxo Bank, emphasized that precious metals have been the main winners of this election. He added, "The drop in energy prices, reduced inflation concerns, and the decline of the dollar have led to renewed buying of gold." In the stock market, reactions have not been uniform. The global stock index rose on Wednesday, and on Wall Street, the S&P 500 increased by 1.6%. However, shares of technology companies, especially chip manufacturers, moved in the opposite direction. Specifically, the Philadelphia semiconductor index fell by 3.1%.
Overall, the current state of global markets is influenced by political and economic developments in the U.S., and investors are closely monitoring conditions to determine their next moves.
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