What’s next? – GOLD, OIL 26.10.17

GOLD

Gold futures were up in early trading hours on Thursday, as market focus shifts to the European Central Bank monetary policy meeting.

On the Comex division of the New York Mercantile Exchange, gold futures were up 0.19 percent to $1.281.40 a troy ounce as of 05:00 GMT.

The yellow metal showed a moderate dynamic on Wednesday, moving close to breakeven as the dollar eased across the board despite upbeat economic data from US, but with expectations for further monetary policy adjustments remaining very high.

The US dollar index, which gauges the greenback against six major rivals, was trading at 93.46 by the time of this writing, down 0.13 percent.

Durable goods orders and housing data were not enough to keep the American currency in green territory, helping bullion prices to shrug off a three-day losing streak.

The US Commerce Department said non-defense capital goods orders, excluding aircraft, increased by 1.3 percent in September, above an initially forecasted 1.0 percent build.

Existing home sales in the United States rose 18.9 percent in September from a prior month to a seasonally adjusted 667,000 units, a separate report from the Commerce Department showed. Analysts had estimated a 0.9 percent drop to an annual rate of 555,000 units.

Gold prices were not able to take full advantage of its recovery as new reports said on Wednesday Stanford University economist John Taylor, one of President Donald Trump’s major candidates for becoming the new Federal Reserve chair in February, was leading the race.

Taylor is seen as more hawkish than the current chairwoman Janet Yellen when it comes to monetary policy normalization. It seems the Trump administration is working hard to push further adjustments to the country’s monetary policy in the near term.

The administration’s tax reform, a bill that will be unveiled on November 1, is expected to promote higher inflation levels, leaving no option to the regulator than raising rates further.

Gold, a dollar-denominated commodity, is highly sensitive to changes in US interest rates. Higher rates dampen demand for safe-haven assets such as the precious metal.

OIL

Oil futures notched down in early trading hours on Thursday as US official inventory data showed a larger-than-expected increase last week, weighing on market sentiment.

The US West Texas Intermediate crude contracts were down 0.15 percent to $52.10 per barrel as of 04:55 GMT. Brent futures were up 0.12 percent, to $58.37 a barrel.

Crude benchmarks settled in red territory on Wednesday, following a downbeat weekly inventory report from the US Energy Information Administration.

The agency showed US crude stockpiles rising for the first time in five weeks, although gasoline and distillate products supplies notched down sharply.

For the week ended October 22, crude stockpiles added 856,000 barrels, against expectations for a 2.6 million barrels decline and above a 519,000 barrels gain estimated by the American Petroleum Institute earlier.

According to EIA data, total crude inventories in the United States were at 457.3 million barrels last week.

Gasoline, one of the most high-demand derivatives of crude oil, dropped by 5.5 million barrels against expectations for a 17,000 barrels draw. Distillate supplies fell by 5.2 million barrels.

In general, the upward trend for energy commodities seems to be still on and far from a serious correction. Drivers for growth include Saudi Arabia’s pledge to “do whatever it takes” to end the supply glut in the market.

Another factor boosting prices is the geopolitical tensions between Iraqi forces and the Kurdish people, who recently voted in favour of independence.

And of course, we could not forget about the controversial OPEC-led output cuts agreement. The oil cartel and non members will gather in Vienna on November 30 to discuss a potential extension of the deal beyond its March 2018 deadline.

Ahead in the week, attention will be directed to Baker Hughes’ weekly oil rig count, which is set for release on Friday as of 17:00 GMT.

Fort Financial Services