Killing of bin Laden Revives Global Markets … But Caution Remains

The dollar rose and precious metal prices dropped in world markets yesterday, amid feelings of investors that the world became more secure in the wake of American President Barack Obama’s announcement about the killing of Osama bin Laden, the leader of al-Qaida. It was observed that principle stocks rose in several of the countries of the world whose markets remained open, despite the work holiday. But some observers warned of overvaluing bin Laden’s death and said that the rise in stock prices, the rise of the dollar, and the drop in primary commodity prices will not continue for long, and that the passionate flame will be extinguished quickly, like other spikes, with a striking market setback.

American stocks opened on the rise yesterday, Monday, in the wake of confirmed reports that American forces killed Osama bin Laden, leader of the al-Qaida organization, whereas investors scaled back part of the risk premium, which supports asset prices that involve risk.

The Dow Jones index rose 62.59 points, or 0.49 out of a hundred to 1,2873.13 points, just as the Standard & Poor index rose 5.50067 points, or 0.42% to reach 1,369.28 points. Likewise, the NASDAQ index rose 8.37 points, or 0.29% to reach 2,881.91 points.

In the exchange market, the dollar recovered from its lowest level in three years against a basket of currencies yesterday, Monday, supported by the killing of Osama bin Laden. But the gains were limited. Low insurance rates are expected to keep the U.S. currency weak. The dollar initially rose in reaction to the news that the leader of al-Qaida had been killed by American Special Forces in Pakistan, a positive factor for Washington, which has been hunting him for 10 years. The news provoked a demand for the American currency, in order to cover public rankings following the dollar index’s record lowest level since mid-2008. With the closing of several Asian markets as well as the London markets during the general holiday, there is a lack of liquidity in the markets. World leaders called out to take warning in anticipation of a probable act of revenge. Analysts said that such an act could be positive for the dollar if it led to a wave of dollar conversions, with investors searching for safe haven. But it was added that this is unlikely. The aforementioned change did not befall the Euro yesterday. It remained at 1.4790 to the dollar. Yet the Euro hovered close to its lowest level throughout the day at 1.4765 to the dollar. Moreover, the common currency remained near its highest level in 17 months, recorded last week at $1.4882. The dollar index, likewise, recorded a rise of 0.3 percent throughout the day after tumbling to 72.813 in the Asian exchange, its lowest level since mid-2008. And the dollar rose 0.2 out of a hundred to 81.50 Yen. The lack of liquidity in the exchange markets led to unstable trading of the Australian dollar, which dropped approximately 0.2 percent to $1.0943 after its record-setting 29-year high during early trading: $1.1011.

In the precious metals market, the prices of silver fell yesterday, sustaining their largest loss since late 2008. Meanwhile, gold cut down on its losses after the news that al-Qaida leader Osama bin Laden was killed in a U.S.-led operation in Pakistan. Silver fell — adversely affecting the recovery of the dollar by up to 10% — to $43.04 per ounce, its lowest level in two weeks, then rebounded to reach a record $44.92. In early trading, gold fell more than five dollars. It is believed that gold is losing a certain extent of its luster as a safe haven after the news of bin Laden’s killing. Yet traders expect that the trend for gold will remain bullish, in light of the current economic and political environment. Darren Heathcot, President of Trading for Investec Australia, told Reuters, “I am not worried about gold now,” adding that the persistent weakness of the dollar and high oil prices will continue to act as a source of support for gold. The price of gold fell five dollars, in direct transactions to record its lowest level of the day at $1,540.39.

Gold had hit a record high of $1,575.79 earlier. By 06:38 GMT, gold fell in immediate trading by 0.3% from the previous closing. Platinum was down 1%, while palladium dropped 1.2%. Oil prices fell by more than 3% yesterday, impacted by the news of Osama bin Laden’s killing. Also, crude futures — see the European “Brent mixture” — decreased $4.22 down to $121.67 a barrel before recovering slightly to around US$22.85 by 9:42 p.m. GMT. The total “Brent” reached its highest level in 32 months last month at $127 per barrel.

Light American crude fell $2.40 to $111.53 dollars per barrel. The oil market is focused on whether the news of bin Laden’s killing will help reduce the risk premium on prices imposed by the war in Libya and related turmoil in the Middle East and North Africa.

Economic experts warned of the possibility of leaders responding violently to bin Laden’s death in the short term, but analysts have ruled out the possibility that the organization will succeed in cutting off oil supplies. Oil had already fallen before the news of bin Laden’s killing after NATO air attacks late in the week resulted in the death of one of the sons of Libyan leader Moammar Gadhafi, and after oil sources said that Saudi Arabia increased its oil production in April.