What’s next? – GOLD, OIL 05.06.17

GOLD

Gold futures were higher in Asian hours on Monday as a terrorist attack in London increased fear among investors of potential political responses from Theresa May’s administration.

Meanwhile, Gulf countries and Egypt have suspended diplomatic and commercial relations with Qatar over alleged financial support to terrorist groups such as the Muslim Brotherhood, ISIS and al-Qaeda, which promote instability in the region.

On the Comex division of the New York Mercantile Exchange, gold for June delivery was trading 0.19 percent higher at $1282.60 a troy ounce as of 07:05 GMT.

The yellow metal settled higher last week following disappointing labor market data in the United States, which eased expectations over a Federal Reserve interest rate hike later this month.

The US Labor Department reported a 138,000 jobs build in May, falling really short from an initially estimated 185,000 jobs growth. The unemployment rate notched down to 4.3 percent, the lowest level in sixteen years.

The US dollar index, which gauges the greenback against a basket of six major rivals, plunged 0.57 percent to 96.61 in late trading on Friday, marking its lowest close since the Nov election.

According to CME Group’s FedWatch tool, chances for a rate hike at the June 13-14 monetary policy meeting are currently standing at 94.6 percent. Market players are expecting a rise of 25 basis points to a range between 1.00 - 1.25 percent.

The precious metal is widely affected by rising interest rates, as they increase the opportunity cost of keeping non-yielding assets in portfolio, while boosting demand for the US dollar.

OIL

Oil prices traded in green territory in Asia on Monday despite Saudi Arabia, Bahrain, United Arab Emirates and Egypt have cut commercial and diplomatic ties with Qatar over alleged financial support to terrorist organizations in the region.

"[Qatar] embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS and al-Qaeda, and promotes the message and schemes of these groups through their media constantly," said news agency SPA.

The US West Texas Intermediate oil futures traded at $48.08 a barrel on the New York Mercantile Exchange, up 0.88 percent from its prior close. The international Brent crude oil futures rose 0.84 percent to trade at $50.37 a barrel as of 07:05 GMT.

Oil futures settled at three-week lows on Friday, marking its worst weekly drop in a month amid growing concerns due to a larger-than-expected US shale production. Investors fear that rising production of light crude will derail OPEC-led efforts to rebalance market forces.

On Friday, oilfield service provider Baker Hughes said 11 rigs were added last week in the United States, leaving the total count at 733 units, the highest level since April 2015.

Crude prices were also under pressure as President Donald Trump decided to withdraw from the 2015 Paris Climate agreement, a controversial decision widely criticized by activists but that could boost local shale oil production in the near future.

Oil traders will remain focused on inventories data this week, which are seen as a response from US producers to OPEC-led output cuts. The nine-month extension of the output reduction deal hasn’t shown a big impact on oil prices, at least not the one expected.

Fort Financial Services