North American stock markets, oil and gold swung widely Wednesday as the U.S. and Iran appeared to favour a military tit-for-tat rather than an all-out war.

Markets initially fell, oil rose and gold surged past US$1,600 an ounce for the first time in nearly seven years after Iranian missiles struck air bases used by Americans overnight in retaliation for the drone killing of a top general.

But the movements reversed after U.S. President Donald Trump said that Iran appeared to be “standing down” and that he would apply sanctions rather than launch bombs.

“The market is clearly in our view suggesting that the worst is over, at least in the near-term on these Iranian geopolitical concerns,” says Mike Archibald, associate portfolio manager with AGF Investments Inc.

Oil moved 10% from the evening high to morning low, gold changed 3.7% or US$60 per ounce and the S&P500 moved 2.7% in that period.

The market was expecting some kind of retaliation by Iran but it was calmed by suggestions that there would be no further escalation, Archibald said in an interview.

“Contrary to how Trump typically acts, he’s acting in a little bit more restrained and reserved fashion in this particular issue and so I think that’s lending some support to broader stock markets and moving people out of some of the macro trades such as oil and gold that had been running up after the first incident that happened last week.”

Canada’s main stock index hit a record high in morning trading but closed essentially unchanged. The S&P/TSX composite lost 0.24 of a point to 17,167.82 after hitting a record 17,229.88 in earlier trading.

In New York, the Dow Jones industrial average was up 161.41 points at 28,745.09. The S&P 500 index was up 15.87 points at 3,253.05, while the Nasdaq composite was up 60.66 points at 9,129.24, after both markets set new intraday highs.

The Canadian dollar traded for US76.77¢compared with an average of US76.87¢ on Tuesday.

Gains by the heavyweight financials sector and six other sectors were offset largely by energy and materials which fell on sharp decreases in the price of crude oil and gold.

Archibald said financials, including banks, gained as U.S. 10-year bond yields increased to nearly 1.9% from 1.7% overnight.

“As yields move higher that typically is good for bank margins and profitability so it does have a correlation to yields on a day-to-day basis,” he said.

Oil prices fell below US$60 per barrel for the first time in more than two weeks on a reduction in the risk premium related to concerns about the Middle East and a report saying U.S. inventories rose last week and beat expectations.

The February crude contract was down US$3.09 at US$59.61 per barrel and the February natural gas contract was down US2.1¢ at US$2.14 per mmBTU.

Energy was pulled down by a 7.4% and 4.5% decrease in shares of Encana Corp. and Crescent Point Energy Corp. respectively.

The decreases followed solid gains in oil prices over the last four weeks, said Archibald.

“While you’re obviously losing money in those names today I would suggest they’re acting quite well just given how much volatility you’re seeing in energy and they aren’t selling off as much as they typically would on a negative 5% oil day.”

The February gold contract was down US$14.10 at US$1,560.20 an ounce and the March copper contract was up US1.85¢ at US$2.81 a pound.

Despite Wednesday’s sharp decrease, gold prices should remain strong this year if the U.S. dollar continues to move lower.

“It’s a bit of a painful day clearly in that sector but a period of consolidation is not necessarily bad for this group on a go forward basis and I think you’re likely to see gold stocks and the gold price end significantly higher in 2020 than where we are today.”