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Middle East tension affects markets

Investors are seeking refuge in both gold and the Swiss franc Keystone Archive

The Swiss franc has risen, oil prices have strengthened and gold has climbed to its highest level in two months as violence in the Middle East continues.

At the end of trading on Thursday, the Swiss franc stood at 1.4625 against the euro, still holding above the 1.46 level, which was breached in March just before the Swiss National Bank surprisingly cut its rates for banks.

Oil prices have also shown an upward trend, topping $28 per barrel for the first time in more than six months earlier in the week.

“The primary driver of oil prices right now is hostilities in the Middle East, but [the market] is more bearish than most expected and should lead to some sort of pullback,” said Kyle Cooper of Salomon Smith Barney bank in Houston.

But equity investors appear to think crude prices will stay hot as Israel continues its offensive in the West Bank.

As far as the gold price is concerned, it jumped to its highest point since February 8 as investors sought refuge in both gold and the Swiss franc.

“Gold will be supported as long as there is a war premium,” said a London-based metals trader.

Strong Swiss franc

The value of the Swiss franc has also risen as investors turn to safe financial havens during troublesome times.

“Clearly, the Swiss franc has risen sharply against the euro and the US dollar in the last few days,” said Hans-Peter Hausheer, a senior economist at UBS.

“It’s part of a historic trend, whereby gold and the Swiss franc are always considered to be safe havens by investors when there are world events that threaten to involve the US or the European Union,” he added.

The most damaging consequence of a rise in the value of the Swiss franc is on exports – 70 per cent of which are destined for the euro-zone countries, explains Hausheer.

“We’re approaching a dangerous limit of SFr1.50 to the euro, which would be damaging to exporters,” says Hausheer.

But Hausheer expressed confidence in the Swiss National Bank’s current policy of introducing more liquidity into the market. “For the moment, the National Bank can afford to continue to do that – but the long term danger is that inflation might rise.”

by Billi Bierling and Vanessa Mock

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR