Sunday, October 24, 2021

Precious Metals & Energy – Weekly Review and Calendar Ahead

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(C) Reuters.

By Barani Krishnan — There’s a new commodity in town. It’s called ‘patience’. And traders need oodles of it when dealing with increasingly bewildering things like the economy, jobs recovery from the pandemic, inflation and Fed tapering and rate hike (the last two, whenever they come).

Gold traders, particularly longs trying to return to the high $1,900s and the more formidable $2,000 levels, probably need this commodity more than the rest, given the daily havoc wreaked by these elements on their price aspirations.

Without patience, other basic resources like ‘mistrust’, ‘panic’ and ‘fear’ will likely be needed to get gold investors to a new place – although these admittedly aren’t as noble as patience.

Florian Grummes, author of the Gold Optix blog, says only when there’s mistrust – or panic and fear to some extent – will there be new “meaningful and contrarian entry opportunities” in the yellow metal.

“Although the pullback over the last few days has certainly caused a decrease in euphoria, the overall consensus is still clearly in favor of further rising gold prices,” Grummes says.

He notes that markets rarely move straight up. “Rather, they have to use twists and turns to make sure that the masses do not fully participate in the price increases.”

“Other than that, patience is a virtue,” he adds.

Grummes may sound like he has the perfect remedy for gold’s current malady. There’s one problem though: he wrote this blog a year ago.

This iteration of his Gold Optix was published on May 28, 2020.

Yet, the market conditions he cites makes this blog seem like it could have been written for today.

This proves one thing: Markets, gold included, work in cycles.

By Thursday, gold had tumbled from the $1,900 perch it had occupied since the previous week on data showing U.S. jobless claims at their lowest since the outbreak of the coronavirus pandemic in mid-March 2020.

The notion of swift labor market recovery sent U.S. bond yields and the dollar surging instead as Comex futures tumbled to a Thursday low $1,866.85 while spot gold touched a nadir of $1,865.49.

But less than 24 hours later, the U.S. jobs picture was looking quite different.

The Labor Department’s nonfarm-payrolls for all of May showed that the United States added just 559,000 new jobs – at least 90,000 below the forecast of economists tracked by – although the monthly unemployment rate fell by three percentage points to 5.8%. This suggested that jobs recovery still had some way to go.

At once, talking heads at research houses began espousing the theory that the Federal Reserve will be nowhere near to raising interest rates or tapering the $120 billion of bonds and other assets it had been buying each month since March 2020 to support the economy.

Aside from the disintegration of tapering talk, the incessant chatter about inflation – sounding almost gibberish by now due to the Fed’s indifference to the whole thing – has also done bunk for gold bulls’ aims of returning to $1,900.

All things being equal, a higher inflationary environment is good for gold, which is seen as the best store of value in times of both financial and political trouble.

Yet in recent months, gold’s rivals, the dollar and bond yields, have rallied instead on signs of ramping inflation, as investors bet the Fed will hike rates faster than anticipated – something it has sworn against.

The Fed acknowledges the price pressures arising from bottlenecks in US supply chains struggling to cope with demand in an economy reopening after months of pandemic-suppression.

But the central bank’s policy-making Federal Open Market Committee, led by Chairman Jerome Powell, insists that these inflationary pressures are “transient” and will fade as the economy makes a full recovery from the pandemic.

The tapering-versus-transient debate has pretty much decided gold’s fate since the start of the year, with more power to the former thus far.

It remains to be seen if the May non-farm payrolls will radically change this in the coming weeks.

“The move in real yields crushed gold prices for most of the week. But the May nonfarm payroll report showed markets that the April report was not a fluke,” said Ed Moya, analyst at online trading platform OANDA. There were just 266,000 jobs added in April — a worse disappointment than May, considering the shortfall of at least 700,000 against forecasts then.

Moya said any Fed tightening of rates or tapering will likely have to wait until the central bank’s annual summer convention in Jackson Hole, Wyoming that serves as the holy grail of its monetary policy.

“Much of the bearish positioning before the nonfarm miss should be undone as the Fed will be seen nowhere ready to talk about tapering,” Moya said, reinforcing the new notion.

Till then, patience is the commodity that the gold crowd needs to invest in – barring which, the alternative resources will be mistrust, panic and fear.

In the case of oil, U.S. crude prices settled the week at their highest since 2018 as producers’ supply discipline and recovering demand countered concerns about a patchy COVID-19 vaccination rollout around the globe.

Also boosting oil this week was a slowdown in talks between the United States and Iran over Tehran’s nuclear program, which reduced expectations of a return of non-U.S. sanctioned Iranian oil to the market.

Gold Market and Price Roundup

Gold futures for August delivery on New York’s Comex did a final trade of $1,894 before the weekend, after settling Friday’s trade up $18.70, or 1%, at $1,892 an ounce. For the week, it fell 0.7%.

The spot price of gold, reflective of real-time trades in bullion, settled Friday’s trade at $1,891.12, up $20.34, or 1.1%. For the week, it fell 0.7%.

Traders and fund managers sometimes decide on the direction for gold by looking at the spot price – which reflects bullion for prompt delivery – instead of futures.

Oil Market Brief & Price Roundup

West Texas Intermediate crude, the benchmark for U.S. oil, did a final trade of $69.41 before the weekend, after settling Friday’s trade up 81 cents, or 1.2%, at $69.62.

For the week, WTI rose nearly 5%, after May’s rally of 4.3%.

Brent crude, which acts as the global benchmark for oil, did a pre-weekend trade of $71.63 after settling Friday’s trade up 58 cents, or 0.8%, at $71.89.

For the week, Brent was up 3.4% after May’s gain of 3.7%.

Energy Markets Calendar Ahead

Monday, June 7

Private Cushing stockpile estimates

Tuesday, June 8

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, June 9

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, June 10

EIA weekly report on {{ecl-386||natural gas storage}

Friday, June 11

Baker Hughes weekly survey on U.S. oil rigs

Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.

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