Key Points
President Trump announced a blockade on the Strait of Hormuz over the weekend.
Oil prices are up, and gold prices are down, as investors fear inflation.
A 1% decline in gold prices cost Newmont Corporation (NYSE: NEM) stock a 3% decline in stock price this morning, as shares reacted to the latest news from the Persian Gulf -- and its implications for both gold prices and the profits of gold miners.
The news also derailed a three-week trend of rising share prices for Newmont stock.
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What's new in the Mideast today
As you've probably heard, President Trump announced over the weekend a blockade on sea-going traffic into and out of the Persian Gulf. U.S. Central Command later clarified that the blockade only applies to ships visiting or leaving Iranian ports.
So essentially, what the Navy is doing is the opposite of a blockade. It's aiming to reopen the Strait of Hormuz to oil traffic for everyone but Iran.
Ordinarily, such news should be good for stock markets and oil prices, because it promises to uncork the Strait and resume the flow of oil to global markets -- but that's not how investors are taking it. The President's move seems likely to anger the Iranians, and perhaps enough that they'll violate last week's ceasefire -- lengthening the conflict and prolonging the global oil deficit.
What does this mean for Newmont stock?
I know what you're thinking: This is all very informative stuff about oil, but Newmont is a gold stock. So what does any of this have to do with the price of gold?
Well, the theory goes like this: When oil prices rise, inflation rises. When inflation rises, interest rates also tend to rise (to contain inflation). Higher interest rates mean higher bond yields, which makes bonds look relatively more attractive than gold as an investment.
Long story short: When oil prices rise, gold prices fall. And so does Newmont stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
