Wednesday, 9 August 2017

What’s next? – GOLD, OIL 09.08.17

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What’s next? – GOLD 09.08.17

Gold prices extended previous gains in Asian trade on Wednesday in the light of higher geopolitical tensions on the Korean peninsula.

On the Comex division of the New York Mercantile Exchange, gold futures were trading 0.70 percent or $8.80 higher at $1,271.40 a troy ounce as of 07:05 GMT.

Following comments from President Donald Trump assuring his country would respond to any threat with “fire and fury”, Kim Jong-un’s government said it is “carefully examining” a possible missile attack on Guam, an unincorporated territory of the United States in the western Pacific.

Geopolitical tensions promote uncertainty in financial markets. Periods of uncertainty are seen as positive for safe-haven assets such as gold, the euro or the Japanese yen.

Earlier in the session, China presented its consumer price index for July. According to data, prices rose 0.1 percent last month, against expectations for a 0.2 percent monthly growth. Year over year prices increased by 1.4 percent, also below a forecasted 1.5 percent build. The producer price index grew 5.5 percent, in line with analysts estimation.

The yellow metal settled in red territory on Tuesday following upbeat job data from the United States Labor Department. Job openings rose by 461,000 in June to a seasonally adjusted 6.2 million in June, the highest level since 2000.

The producer price index and the consumer price index data set for release on Thursday and Friday remain in focus as they are expected to provide fresh direction to the precious metal.

A rising rates environment lifts the opportunity cost of holding non-yielding assets such as the dollar-denominated gold, while promoting demand for the American currency.

According to Fed funds tracked by CME Group’s FedWatch tool, market players are currently pricing in a 42.5 percent probability of a third rate hike by December.


OIL

Oil prices extended losses for a third day in a row on Wednesday despite an industry report showing a larger-than-expected drop in crude inventories, as concerns over OPEC’s ability to counteract an ongoing crude glut continued to weigh on market sentiment.

The US West Texas Intermediate crude futures traded 0.33 percent lower at $49.01 per barrel as of 07:05 GMT, while the London-based Brent contracts on the ICE Futures Exchange in London were down 0.42 percent to $51.92 a barrel.

The American Petroleum Institute said late on Tuesday that crude inventories fell 7.8 million barrels in the week ended August 4 to 478.4 million barrels. Analysts had forecasted a 2.7 million barrels drop.

Market participants are still looking ahead of data from the US Energy Information Administration. Official figures will be available as of 14:30 GMT on Wednesday.

According to analysts, US shale oil production is expected to continue slowing down for quite some time as producers find very difficult to make profits when prices move under $50/barrel.

Meanwhile, the Organization of the Petroleum Exporting Countries seems to be struggling to promote a higher compliance with the output cut agreement among its own members.

Libya and Nigeria oil productions have been recovering in the last few weeks and they aren’t contributing to the deal as they were exempted from it.

OPEC and non-OPEC countries have renewed its output cut deal for a nine-month period last May in an effort to increase crude prices and rebalance market forces.

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