THE danger of reprisal attacks from Al-Qaeda and further global instability saw stocks take a hit yesterday, after initially soaring on the back of news of Osama bin Laden’s death.
The Dow Jones industrial average jumped by almost half a percentage point to touch 12,873 at the open.
However, the Dow then sank below its starting level to 12,806 during lunchtime trading after officials warned of an increased risk of anti-American violence.
“Market participants began to focus upon the prospects for a potential surge in terror attacks against Western targets in retaliation for the killing,” said Mike Ryan, chief investment strategist at UBS in New York.
The Dow closed the day at 12,807.
So-called “safe haven” investments such as precious metals took a huge knock as the news of bin Laden’s death broke and some investors sensed a change in risk premiums. However, commodities’ losses were pared during the day.
Spot gold shed more than $5 an ounce in the immediate aftermath, but quickly recovered, rising to 0.3 per cent higher than its starting price towards the end of the morning session. Gold closed the day at $1,557.
Silver suffered an even stronger hit at the opening of business, tumbling as much as 11 per cent, yet also trimmed losses to end the day on $45.82 an ounce.
“We are seeing volatility at an unprecedented level here,” said Saxo Bank’s Ole Hansen.
Markets across large parts of Asia and much of Europe were closed for bank holidays, reducing the number of market participants and making for volatile trade.
The CBOE Volatility Index, Wall Street’s “fear gauge,” rose more than five percent and US crude oil futures turned negative in volatile trading.
Brent crude futures were 0.61 per cent down at the close of play at $124.80 a barrel.
“Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia,” said Mohamed El-Erian, chief executive of bond fund manager PIMCO.