Monday, 25 September 2017

What’s next? – GOLD, OIL 25.09.17

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GOLD

Gold futures were lower in early trading hours on Monday as the greenback, currency in which the metal is denominated, extended its recovery in the light of a stronger risk-on demand.

The US dollar index, which gauges the greenback against six major currencies, was trading at 92.05 by the time of this writing, adding 0.09 percent.

On the Comex division of the New York Mercantile Exchange, gold futures were trading 0.15 percent lower at $1,295.50 a troy ounce as of 06:40 GMT.

The precious metal settled in green territory on Friday as the risk aversion increased over concerns for further developments in the Korean peninsula.

A top North Korean official said his country is considering the launch of a hydrogen bomb of an unprecedented scale in response to Trump’s recent speech at the UN General Assembly.

Trump had promised to “totally destroy” Kim Jong Un’s regime if North Korea threatened US or allies territories. Trump and his South Korean counterpart agreed further sanctions are needed.

Over the weekend a 3.4 magnitude earthquake was detected in North Korea, rising speculation that another nuclear bomb could have been tested. However, scientists pointed out that the quake might have been of natural cause, a reaction of the recent nuclear test.

South Korea Meteorological Administration said the earthquake started in the northeastern area of Kilju, only 3.7 miles of where Pyongyang conducted its hydrogen bomb test on September 3.

The yellow metal is expected to extend losses if the Federal Reserve moves forward with its plan to normalize monetary policy. Rising interest rates increase risk-on demand and promote the US dollar, making gold a less competitive investment for those holding foreign currencies.

Ahead in the day, market participants will focus on speeches from FOMC members Dudley and Kashkari as of 12:30 GMT and 22:30 GMT. European Central Bank President Mario Draghi is set to speak at 13:00 GMT before the European parliament in Brussels.

OIL

Oil futures dropped in early trading hours on Monday as market participants closed long positions following upbeating remarks from OPEC and non OPEC nations.

The US West Texas Intermediate crude futures were trading 0.30 percent lower at $50.51 per barrel as of 05:50 GMT, while the London-based Brent contracts were up 0.16 percent to trade at $56.77 per barrel on the ICE Futures Exchange.

Members of the Organization of the Petroleum Exporting Countries and its allies gathered in Vienna on Friday to discuss the future of its so-called output cuts agreement. The oil cartel decided to postpone the decision of an eventual extension.

However, producers said compliance with the deal, which was extended in May 2017 was of 116 percent in August, up from a previous month reading of 94 percent.

Kuwaiti Oil Minister Essam al-Marzouq said the market "is evidently well on its way towards rebalancing." This comment supported oil benchmarks.

Russia’s Energy Minister Alexander Novak said January is the earliest date for considering an extension of the output reduction, but other representatives suggested the decision will be taken by the end of 2017. The committee will meet again on November 29 in Vienna.

Markets were also cautious in the light of geopolitical developments in the Korean peninsula. A 3.4 magnitude earthquake was registered in North Korea and there were doubts whether it was a natural event or it was the result of a new nuclear test.

Meanwhile, Baker Hughes said oil rigs operating in the US fell by 5 to 744 last week, marking a third weekly consecutive decline, suggesting lower US production is to be expected.

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