Economists and investment strategists have heeded caution about flooding into commodities.
Investors have been urged to remain calm amid ongoing conflict between Western allies and Iran, causing geopolitical volatility to skyrocket.
Since the joint US-Israeli strikes on Iran on Saturday (28 February), which killed supreme leader Ayatollah Ali Khamenei and led to Iranian retaliation, some investors have looked for defensive positions in traditional safe haven assets such as gold and oil.
At the time of reporting, gold was up 3.1% today (2 March) to over $5,412 per ounce, while Brent crude had surged 8.6% to $79.15 per barrel, according to data from MarketWatch.
Oil prices surge as US-Iran conflict intensifies
Year-to-date, oil has risen 29.8% as geopolitical volatility has surged, while BullionVault's director of research, Adrian Ash, noted that Saturday's attacks on Iran spurred record weekend demand for gold on its 24/7 marketplace.
Despite this, economists and investment strategists have heeded caution about flooding into commodities.
Forvis Mazars chief economist George Lagarias said this energy market turbulence will be "sharp but short-lived".
Concerns have arisen about the impact of blockages caused by the effect of closing the Strait of Hormuz, the only sea passage from the Persian Gulf to the wider ocean, a key strategic chokepoint.
However, according to Lagarias, "the region and energy markets have prepared for the present eventuality, and it is only a matter of time before contingency plans become operational that would allow oil to flow beyond Iranian chokepoints".
OPEC+ has already suggested it could help to fill the void of Iranian's 3-5% global oil production.
Lindsay James, investment strategist at Quilter, echoed this view. She explained that even though US President Donald Trump has set out a four-week timeline for this conflict, longer than the "short and sharp" recent military interventions, Western nations are reluctant to see this conflict escalate.
"There seems to be no appetite for ‘boots on the ground' and possibly a limited arsenal to allow for a longer bombing campaign," said James.
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Ahead of the upcoming mid-term elections in the US later this year, James argued a "relatively ‘quick win' is likely to be sought", to avoid a negative reaction from voters at the ballot box.
In the event that conflict persists and escalates, US growth would likely decrease, while inflation would increase and the Federal Reserve's anticipated trio of rate cuts would be more difficult to justify, said Lombard Odier chief economist Samy Chaar.
Instead, Chaar said: "In our base scenario of limited escalation, we expect an increase in average US headline inflation from 2.5% to 2.6% in 2026, with real GDP growth unchanged at 2.2%, and keep our scenario of three interest rate cuts from the Federal Reserve unchanged, as we would expect the Fed to look through any modest increase in headline inflation."
Quilter's James also urged investors to look through the noise because "calm should prevail in markets before too long, even if a period of volatility may now be in store".
"For investors, this is the time to hold your nerve. Events such as this can be unsettling, but remembering the reasons why you invested in the first place, and staying the course over the long term will continue to be the best strategy," she added.
Despite major moves in commodities and precious metal prices, this has failed to seep through into equity and bond markets.
Amova Asset Management's chief global strategist, Naomi Fink, said: "Both equity and bond markets […] seem to be pricing in a limited conflict."
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At the time of reporting, the FTSE 100 was down 1.5% while the S&P 500 dropped 0.6%, according to MarketWatch data. Yields on US 10-Year Treasury notes, meanwhile, were largely unchanged at 4.01%.
Christian Schulz, chief economist at AllianzGI, said: "A sustained closure of the Strait of Hormuz remains unlikely for now, but is a non-negligible tail risk, given the strategic value of this chokepoint for global oil and liquified natural gas flows."
He continued: "For now, the most plausible short-term trajectory is higher volatility."
