What’s next? – GOLD, OIL 06.06.17

GOLD

Gold futures were higher in early trading on Tuesday, with traders opting for a cautious positioning in light of the developing geopolitical tensions between key Arab nations and Qatar over alleged financial support to terrorists groups that promote regional instability.

On the Comex division of the New York Mercantile Exchange, gold for June delivery was trading 0.34 percent higher at $1287.10 a troy ounce as of 04:55 GMT.

The precious metal was boosted by the Middle East crisis on Monday, moving to a six-week high but rapidly retreating as sentiment came under pressure due to downbeat economic data.

US factory orders fell 0.2 percent in May, in line with market analysts’ expectations, according to the Commerce Department. In a separate report, the Institute for Supply Management reported a weaker-than-expected non-manufacturing index at 56.9 for May.

Traders are currently paying attention to every data out there as the Federal Reserve is set to meet next week for a key monetary gathering and a 25 basis points rate hike is eyed.

According to Fed funds tracked by the CME Group’s FedWatch tool, market participants are pricing in more than a 94 percent chance of a rate move later this month.

Higher interest rates promote the US dollar, in which gold is denominated, making the metal a less competitive investment for traders holding foreign currency.

Market players are also keeping an eye on Friday’s parliamentary elections in the United Kingdom. A recent YouGov poll showed the Conservative Party can secure only 305 seats in the House of Commons, falling short from the 326 seats required for a majority.

OIL

Oil prices were down in Asian hours on Tuesday as market players looked ahead of an industry report on crude inventories in the United States, while closely monitoring the tense situation between Qatar and other Arab countries of the region.

The US West Texas Intermediate oil futures traded at $47.20 a barrel on the New York Mercantile Exchange, down 0.42 percent from its prior close. The international Brent crude oil futures eased 0.36 percent to trade at $49.29 a barrel as of 04:55 GMT.

The American Petroleum Institute is set to release its weekly report on crude and refined products stockpiles late on Tuesday. Also, the US Energy Information Administration is expected to publish its monthly Energy Outlook report, ahead of inventory data on Wednesday.

At this stage, market analysts are forecasting a 3.447 million barrels drop in crude stockpiles for the week ended June 2. Distillates are seen up by 697,000 barrels, while economists predicted a 271,000 barrels increase for gasoline supplies.

Crude benchmarks settled in red territory on Monday after Saudi Arabia and other important nations of the Middle East region broke commercial and diplomatic relations with Qatar over alleged support to terrorist organizations such as ISIS and al-Qaeda.

Oil prices first reacted positively to spiked tensions in the region, but quickly corrected downward as the crisis could jeopardize the output cut agreement of the Organization of the Petroleum Exporting Countries.

Oil traders are being very careful at the time as Qatar could exit the output deal and ramp up its production back to its 600,000 barrels per day capacity. The OPEC-led pact, which also includes non-OPEC countries such as Russia, is set to last until March 2018.

Fort Financial Services