Monday, 2 October 2017

What’s next? – GOLD, OIL 02.10.17

Posted by Valentine at 10:37 Labels:

GOLD

Gold futures were down in early hours on Monday as geopolitical tensions eased and as attention shifted to US employment data set for release later this week.

On the Comex division of the New York Mercantile Exchange, gold futures were trading 0.58 percent lower at $1,277.30 a troy ounce as of 04:45 GMT.

Gold ended last week in red territory as expectations for a third Fed rate hike later this year continued to grow despite downbeat inflation data from the United States.

The core personal consumption expenditures price index, one of Fed’s favorites inflation measures, saw a 1.3 percent growth in August, down from a previous month advance of 1.4 percent.

The Commerce Department said consumer spending rose by 0.1 percent last month. Consumer spending accounts for nearly two thirds of US economic activity.

Despite both reports fell short from originally estimated values, traders were pricing in more than a 70 percent probability for a rate move by December.

At this stage, Fed’s short term interest rate stands in a range between 1.00 percent and 1.25 percent after having been increased in two opportunities this year. A 25 basis points hike is expected in the near future

The precious metal is denominated in US dollars. Therefore, a rising interest rate environment turns into a more expensive asset for foreign investors.

Gold seems to be locked in a downtrend by two key factors: the continuing monetary policy normalization process and expectations for a massive tax reform in the US.

OIL

Oil prices were lower in early trading hours on Monday, with market participants digesting the latest oil rig count which anticipates a higher US shale oil production.

The US West Texas Intermediate crude futures were trading 0.37 percent lower at $51.48 per barrel as of 04:45 GMT, while the London-based Brent contracts were down 0.51 percent to trade at $56.50 per barrel on the ICE Futures Exchange.

Crude benchmarks settled in green territory last week, with traders weighing the possibility that Turkey will “close the valves” on the pipeline that connects northern Iraq and the port of Ceyhan.

The pipeline carries 500,000 to 600,000 barrels of crude oil per day. Turkey’s President Recep Tayyip Erdoğan warned that he will only deal with the Iraqi government regarding energy.

His comments came in after the Kurdish people voted for independence from Iraq. Erdoğan’s remarks boosted fears of supply shortages in the region.

Meanwhile, investors paid attention to the state of the US shale oil production. Oilfield services firm Baker Hughes presented its weekly oil rig count. The GE company said the number of rigs operating in the United States increased by 6 to 750 units last week.

The weekly rig count helps investors estimate rises or falls in US crude stockpiles for the near term. The latest data suggests that inventories are likely to build up in the upcoming weeks.

The US Energy Information Administration said last Wednesday that crude inventories fell by 1.8 million barrels in the week ended Sept 22, against expectations for a forecasted a 3.4 million barrels build. Such information provided benchmarks with a good support to hold above $50/b.

Also, crude prices were boosted by growing speculation over a potential extension of OPEC’s output agreement beyond its March 2018 deadline. OPEC and its allies agreed in May to extend the deal signed in November 2016 for a nine months period at a reduction target of 1.8 m bbd.

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