Monday, 23 October 2017

What’s next? – GOLD, OIL 23.10.17

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GOLD

Gold futures dropped in Asian hours on Monday as the US dollar rose in the light of a strong victory of Japan's Premier Shinzo Abe in early parliamentary elections.

On the Comex division of the New York Mercantile Exchange, gold futures were down 0.34 percent to $1.276.20 a troy ounce as of 07:30 GMT.

Last week, the yellow metal settled in red territory, down by 0.59 percent at $1,282.42 on the Comex division of the New York Mercantile Exchange. Gold prices were down 1.86 percent compared to the week ended October 13.

The precious metal came under pressure after Republicans members of the US Senate passed a budget measure allowing them to implement tax reductions without the need of consensus with the Democrats, bringing President Donald Trump’s tax plan even closer.

As for individuals, the Trump administration wants to ‘simplify’ the current seven-brackets tax system to only three categories. By leaving more money into people’s pockets, the government intends to boost consumption and push inflation levels as a result.

On the corporate side, Trump’s tax plan proposes strong reduction to the current rates, which could allow big players to relocate their foreign earnings back to the United States.

The US dollar index, which gauges the greenback against six major rivals, traded close to 93.57 late on Friday after having one of its best sessions in October.

Market participants expect fiscal stimulus by the administration will push the US Federal Reserve to move forward with further rate adjustments in the upcoming months.

According to Fed funds tracked by CME Group’s FedWatch tool, investors are currently pricing in more than a 90 percent chance of a rate hike by December.

Gold is a dollar-denominated commodity and it is very sensitive to interest rate adjustments in the United States. A raising interest rate environment not only makes the dollar stronger, but also dampens demand for safe-haven assets such as bullion.

Events on the watch this week include the European Central Bank monetary policy meeting on Thursday and the release of third-quarter US Gross Domestic Product on Friday.

No relevant economic reports are scheduled on Monday.

OIL

Oil futures traded higher on Monday with supply disruptions in the Middle East supporting prices and as the US market points to lower production levels for the coming months.

The US West Texas Intermediate crude contracts were up 0.35 cents, or 0.68 percent, to $52.19 per barrel as of 07:30 GMT. Brent futures added 0.16 cents, or 0.28 percent, to $57.91 a barrel.

Crude benchmarks settled higher on Friday, amid rising political tensions in the Kurdistan region, with supply disruptions boosting oil prices.

Local sources said Kurdish oil exports at the Turkish port of Ceyhan were in average of 216,000 barrels per day by the end of last week, against an usual flow of 600,000 bpd.

The region is facing serious political challenges after a vast majority of Kurdish citizens voted in favour of independence from Iraq a few weeks ago, increasing tension with Turkey and the US.

Meanwhile, oilfield services provider Baker Hughes reported Friday a reduction in the number of oil rigs operating in the US for a third consecutive week.

According to data, the total count dropped by seven units to 736, the lowest figure since June. This report helps anticipate future domestic production levels.

Last week, the US Energy Information Administration said crude inventories fell 5.7 million barrels in the week ended October 13. The agency also reported a 900,000 barrels build in gasoline supplies and a rise of 500,000 barrels in distillates.

Attention is also directed to the OPEC-led output cuts agreement. The cartel and non-OPEC members will gather in Vienna on November 30 to discuss a potential extension of the deal beyond its current deadline of March 2018.

OPEC’s Secretary General Mohammad Barkindo said on Thursday the market is rebalancing at an “accelerated pace,” and that he expects demand to quickly increase in coming years.

Ahead this week, investors will be pending on crude and refined products stockpiles from the American Petroleum Institute on Tuesday, official data on Wednesday and Baker Hughes weekly oil rig count on Friday.

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