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Geopolitical tensions drive buoyancy for oil and gold

Security concerns fuelled by the shooting down of Russia's warplane by Turkey hit the risk appetite hard and weighed on market sentiment. The incident dented a hole in the hope of betterment in the relationship between Russia and the West which had shown glimpses of strengthening post Paris attack. The incident will make it more difficult for the West and Russia to engage in joint military action against the IS terrorist militia in Syria and Iraq. 

The significantly worsened geopolitical tensions in the Middle East had huge market repercussions. Traders inclined towards safe heavens like gold and treasuries. Gold price climbed to around $1,080 per troy ounce following the incident. However, a more pronounced price rise is being blocked by the growing expectation of a December rate hike by the Fed (the probability of which is now 75%, according to the Fed Fund Futures).  
Oil prices also rose sharply as a result, both Brent and WTI gaining by around 3%. Brent climbed to as high as $46.5 per barrel and WTI to a good $43 per barrel. Both Brent and WTI have shed some of their gains after the API reported that US crude oil stocks had risen by 2.6 million barrels last week. Stocks at Cushing increased by 1.9 million barrels. The U.S. Department of Energy is also likely to report a further inventory build this afternoon. If this turns out to be similarly high, crude oil stocks could exceed the record level they reached in the spring, further weighing on oil prices.

Any worsening of tensions between Turkey and Russia could see investors seeking safety in bullion. An increase in tensions could also affect oil shipments: according to the US Energy Information Administration, 2.9 million barrels of crude oil per day were transported through the Bosporus from the Caspian Sea to the Mediterranean in 2009. Since Turkey is a member of NATO, there is the threat in a worst case scenario of a conflict between the Western military alliance and Russia.  

The dollar index held near 100.17, an eight-month high reached in the previous session, hurting gold. A stronger greenback makes dollar-denominated gold expensive for holders of other currencies, while higher rates could dent the appeal of non-yielding bullion. Gold hovered close to its lowest in nearly six years on Thursday, as the dollar held at multi-month highs and U.S. economic data reinforced market expectations of an interest rate hike this year. Spot gold rose slightly to $1,072.70 an ounce by 0634 GMT, after dropping 0.4 percent on Wednesday. 

Oil prices fell on Thursday as fears of escalating violence causing supply disruption in the Middle East faded and focus returned to a persistent market glut and increased global output. Brent was down 46 cents to $45.71 a barrel at 0859 GMT. West Texas Intermediate futures were down 21 cents at $42.83 per barrel after the U.S. crude rose to $43.30 earlier the session.

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