ALTERNATIVE MARKETS UPDATE – MID APRIL 2024

​Although oil prices were relatively steady at moderate to high levels over the past year, prices started increasing. Most recently, a potential intervention by Iran in the conflict in Israel led oil to surge further in price. At its peak in 2024, WTI crude oil traded at nearly $88 per barrel, which fell slightly to the current level of $86 per barrel, as shown in Figure 1. This decline is attributed to the current view that Iran has refrained and is expected to continue to refrain from getting involved in the conflict. Nonetheless, geopolitical tensions in the Middle East pose a significant threat to oil supply and could result in price shocks should the current situation escalate. Excluding major escalation, it is likely that oil will remain relatively stable throughout 2024 with limited upside and downside potential. The current economic situation and at least the short-term outlook appear to be beneficial for oil demand. Improved manufacturing data from the US, China, and India boost the requirement for oil. Interest rate cuts on the horizon are likely to boost economies, which also results in higher oil demand. On the supply side, the OPEC+ held the supply relatively tight to maintain moderate to high prices for oil. In case oil should move significantly higher, production would likely increase from the OPEC+, as it would push alternatives which hurts oil's long-term outlook. Nonetheless, in the case of escalations, especially in the Middle East, supply could be constrained, which could result in strongly soaring oil prices that cannot be resolved quickly.

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RESEARCH PERSPECTIVE VOL. 225 April 2024 Alternative Markets Update Although oil prices were relatively steady at moderate to high levels over the past year, prices started increasing. Most recently, a potential intervention by Iran in the conflict in Israel led oil to surge further in price. At its peak in 2024, WTI crude oil traded at nearly $88 per barrel, which fell slightly to the current level of $86 per barrel, as shown in Figure 1. This decline is attributed to the current view that Iran has refrained and is expected to continue to refrain from getting involved in the conflict. Nonetheless, geopolitical tensions in the Middle East pose a significant threat to oil supply and could result in price shocks should the current situation escalate. Excluding major escalation, it is likely that oil will remain relatively stable throughout 2024 with limited upside and downside potential. The current economic situation and at least the short-term outlook appear to be beneficial for oil demand. Improved manufacturing data from the US, China, and India boost the requirement for oil. Interest rate cuts on the horizon are likely to boost economies, which also results in higher oil demand. On the supply side, the OPEC+ held the supply relatively tight to maintain moderate to high prices for oil. In case oil should move significantly higher, production would likely increase from the OPEC+, as it would push alternatives which hurts oil's long-term outlook. Nonetheless, in the case of escalations, especially in the Middle East, supply could be constrained, which could result in strongly soaring oil prices that cannot be resolved quickly. Figure 1: WTI Crude Oil and Its Performance Since January 2023, Source: FXEmpire, April 2024 Similar to oil, gold has shown a steady 2023 without many moves in either direction. However, this changed significantly in March 2024, when gold began to soar and it has not slowed down since, as shown in Figure 2. Gold is reaching consistently new record highs with the current one being at $2,372 per ounce. The underlying reasons for the attractivity of gold are straightforward. As a safe-haven asset, gold is appealing due to significant uncertainty. These include the geopolitical tensions in Eastern Europe and the Middle East. Financial markets, especially equity markets, are also behaving irrationally, as macroeconomic indicators are indicating a recession for a long time, which has not (yet) materialized. Inflation is another strong reason to buy gold. However, these factors were present for a couple of years now and they affected gold prices very little during the past year. Despite these underlying reasons, the timing of the surge is difficult to understand. While geopolitical tensions have only risen recently, inflation has cooled and recession indicators are no longer as pronounced as they were before. Additionally, most market participants anticipated interest rate cuts earlier than in the current state. It is also notable that interest rate cuts seem to be delayed further each month. It supports the hypothesis of gold as an “uncertainty” hedge, but gold is less attractive when interest rates are high. Hence, gold should rise when interest rates fall. Despite continuously later expected interest rate cuts, gold is increasing sharply. Overall, this development suggests investors are getting more concerned about the geopolitical tensions, which have acted as the core driver of gold gains since March 2024. Figure 2: Gold Price and Its Performance Since January 2023, Source: Investing, April 2024 Bitcoin (BTC) and the entire cryptocurrency market also enjoyed its most recent rally. BTC has received a lot of attention recently with the approval of spot BTC ETFs by the SEC and the upcoming Bitcoin Halving anticipated to take place on April 19th, 2024. BTC has been on a strong rally since October 2023 with few pullbacks during the rally. While the performance of BTC was strong in 2023, it is largely attributable to the strong decrease during 2022 and entering 2023 at close to its lowest point of the past few years. Another source of the strong performance is the recent bull run which started in October 2023. It will be interesting to see how BTC and the crypto market will perform after the Halving takes place, as it has historically been the most successful period in the Halving cycle. While brief pullbacks are common (mostly due to “selling positive news”), they typically initiate another bull run. However, with BTC becoming more popular, and most profit-takers having exited positions following the ETF approval, it remains to be seen whether this trend will continue. Figure 3: Bitcoin Price and Its Performance Since January 2023, Source: CoinMarketCap, April 2024 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 2nd February 2024, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.4 billion. 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