Investors unsure on pricing Gaza conflict, says UBS

Reuters/Luke MacGregor

• Watching Iran oil output
• $100 a barrel expected
• Gold will ‘do its job’

Global investors and markets are “not sure” how to price in the fallout from the Israel-Gaza conflict, according to Swiss private wealth bank UBS. 

“It’s very hard for the markets to price these events,” Mark Haefele, chief investment officer in the global wealth management division at Swiss bank UBS, told reporters on Thursday.

“So far, we’ve seen this war being relatively contained in a small area and it hasn’t really bled into a belief that there’ll be a wider conflict. It’s something that investors around the world are watching, but they’re not sure how to price it yet.”

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Hafaele was speaking as part of a webinar hosted by UBS to launch the bank’s new report in which it outlines key opportunities and risks over the next 12-months. 

UBS has conducted its own analysis on the potential impact of the Israel-Gaza conflict on oil markets in 2024, noting that in its base case it expects Brent to trade in the $90-$100 per barrel range. 

If Iranian crude exports fall by 500,000 barrels per day, the Swiss bank said it believed this could push oil prices to $100-$110 per barrel. 

A broadening of the conflict across the region, involving other oil producers, could raise prices above $120 per barrel, it added. 

“If Iran’s exports were to fall further, let’s say 1.5 million barrels of oil supply, that obviously would lead to higher prices,” said Dominic Schnider, head of global fixed income and commodities in the global wealth management division at UBS.

“The Saudis can step in, but they’re probably not going to with an oil price at $80, but more like north of $100. 

“Something that investors need to keep in mind is that oil remains one of the key economic transmission mechanisms, and there’s clearly no risk premium price at this point in time.” 

The UBS report noted that geopolitical uncertainty means investors should prepare to hedge market risks. The bank recommends capital preservation strategies and macro hedge funds, with oil and gold as hedges to focus on in 2024.

“Gold clearly has done its job this year as a portfolio diversifier and it will continue to do its job,” Schnider said. 

“But keep in mind that it has rallied a fair bit, so in the near term there’s a little bit more pullback potential.” 

UBS said that the combination of current interest rate and geopolitical uncertainty may lead to choppy gold prices in the near term but it recommends that investors with existing long gold positions should hold onto them in anticipation of a recovery over the next six to 12 months. 

The bank expects gold to rise from its current $1,900 per ounce to a record $2,150 per ounce by the end of 2024 if potential US interest rate cuts become a reality.