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A fall in the risk premium for commodity markets on the death of Osama bin Laden will be short lived, with gold and oil in focus on new concerns that al Qaeda may seek retribution by attacking high-profile targets and fuel unrest in the Middle East.
Soon after U.S. President Barack Obama announced the death of the Saudi-born bin Laden, officials warned of an increased risk of anti-American violence in the wake of the killing of the al-Qaeda leader in a firefight with U.S. forces.
Capturing the mastermind of the September 11, 2001, attacks after a hunt lasting a decade is seen as a political victory for Obama, creating an image of strength.
Prospects that geopolitical risk will decline also may take some of the hefty premium out of oil prices in the short-term.
But a new worry has also emerged -- possible unrest in key oil exporting nations such as Saudi Arabia in reaction to the death, and plans to attack high profile targets, which have in the past included oil processing facilities.
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"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 and co-chief investment officer of PIMCO, the world's largest bond fund manager.
U.S. oil prices fell by as much as 1.7 percent in the minutes after the news began to percolate across media outlets, while Brent crude dropped 1.2 percent.
Oil markets have rallied by around a quarter so far this year, supported by civil war in Libya and anti-government protests in the Gulf, independent of any threat posed by al Qaeda.
Ultra-loose monetary policy and demand for inflation-resistant investments including oil, and gold which is trading at record levels, have also underpinned the market and will not evaporate after bin Laden's death.
Spot gold also shed more than $5 in the immediate aftermath, but quickly recovered to levels before the announcement, but remained down 0.5 percent on the day.
"The threat from terrorism is not over. I suspect that his death will trigger a retaliatory attack in the short term... I think gold's status as a safe haven is intact," said David Thurtell, an analyst at Citigroup.
By 0635 GMT, U.S. gold prices had turned positive, trading $2.40 higher at $1,558.80, having dropped to $1,540.30 soon after the news.
RISK PROFILE CHANGES
Bin Laden's death may have a significant impact on morale and motivation in al-Qaeda, political risk commentators noted. But organizationally, the movement is designed to function without central leadership, and the detrimental effect on its ability to prosecute attacks will be minimal.
