Osama bin Laden’s Death: Impact on Commodities Markets?

- May 3rd, 2011

Since the news on Sunday of Osama bin Laden’s death, many commodities, especially precious metals, has been marked by high volatility. Will the killing of bin Laden have long term effects on the US and World economies?

By Michael Montgomery—Exclusive to Gold Investing News

The death of the world’s most wanted criminal, Osama bin Laden, is a turning point in the 10-year War on Terrorism sparked off by the tragic events of September, 11th. It marks a psychological blow to not only Al-Qaeda, but all radical Islamic extremists around the globe. The civilized world has also breathed a slight sigh of relief as many see it as eroding a sense of perpetual threat to security; however, while the head of the snake has been cut off, the threat is far from over. The possibilities that America may be attacked again, that the economy may not recover, and that the US national debt may be spiraling out of control are still very real. Will the death of Osama bin Laden have any lasting effect on the economy in the US and the western world?

Since 9/11, loose monetary policy and the growing debt held by China, in part to fund the wars, has fueled some of the bull run in the gold market, and to a lesser extent silver. Since the announcement of the death of bin Laden on Sunday, precious metals have seen tremendous volatility. June gold was down $25.80 at $1,531.30. Spot gold lost $14.70 an ounce at $1,531.50. July Comex silver lost $4.78 at $41.30 an ounce. Silver’s losses from Friday to Monday were the largest one day loss in 31 years.

But, there are other factors at play in these markets than simply the death of bin Laden. Increasing worries about rising interest rates in India and China are bearish factors. The CPM Group released a less than positive forecast for silver, warning that the white metal could fall $12 or more, to around $37 an ounce or lower, very quickly. And COMEX announced it was raising margin requirements for silver by 12 percent after the end of the trading session Tuesday, forcing many individual investors to exit the market.

“Recent buyers will be most impacted by margin increases,” says RBC precious metals analyst George Gero. “New margin requirements make silver more expensive to trade now than gold per contract for the average firm.”

Silver ETF’s have also been weak but have lost less than the price of silver. iShares Silver Trust (NYSE:SLV) was down on the day losing 2.25 percent.

The greenback may be benefitting from the news of Osama’s death. The dollar index was slightly up the day by .17 percent; however, the US dollar remains near a three-year low. Oil prices have also lost a bit of ground. NYMEX Crude Futures slid $2.33 down to $111.19 a barrel. Brent Crude was down $2.04 to $122.32 a barrel. The impact of the death of Osama bin Laden is indirect at best, and in the coming weeks and months, ongoing strife in Libya, Syria and the Middle East region will continue to support oil prices.

Some economists and market analysts see the killing of bin Laden as a potential benefit for the US economy. Warren Buffet and Jack Welch, speaking with CNBC, stated that the news may benefit the nation psychologically. France’s Finance Minister Christine Lagarde, said that the death could bolster consumer confidence.

Mark Zandi, Chief Economist at Moody Analytics, is also echoing this sentiment, “It’s a win, and goodness knows we needed a win. Sept. 11 set off a chain of events that cost us dearly. It’s a key reason for the Lost Decade we just had.”

However, in the long run most analysts do not expect the Al-Qaeda leader’s death to have a large effect on the markets, and especially not over the long term.

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