Morning Wire – Gold Down, Oil Up on Possible Iran Sanctions

This afternoon’s meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy is viewed as the first step to arriving at a permanent solution to the Eurozone’s financial by the end of this week. The European Central Bank meets on Thursday and the bank is expected to express a greater willingness to purchase Eurozone bonds if the monetary union can reach agreement on a fiscal plan.

Optimism has pushed the euro up against the US dollar and has pushed down the price of gold. Two hours before US markets open, gold is trading at $1,743.80, down nearly -0.5%.

The price of crude oil is rising as a war of words with Iran is making traders nervous. The UK added additional Iranian companies to its blacklist last week, as more sanctions against Iran are threatened if the country does not cease its nuclear development program.

For its part, Iran says that talk of sanctions by itself will push crude prices to $250/barrel. Europe takes about one fifth of Iran’s 2.2 million barrels/day of production, and if the Middle Eastern country should take the initiative and refuse to ship crude to Europe, replacing that oil could be a problem for the Europeans. In reality, it would be less of a problem than the headlines would have us believe because Europe would just change its source of supply and the Iranian oil could go somewhere else.

News like this always moves crude prices up and today is no different. Brent crude is trading up $0.98, about 0.9%, at $110.92/barrel. WTI crude is trading up about 0.6%, at $101.60.