What’s next? – GOLD, OIL 17.01.18

GOLD

Gold futures traded in green territory in early trading hours on Wednesday as a weaker dollar continued to boost the precious metal, while traders awaited fresh economic reports.

On the Comex division of the New York Mercantile Exchange, gold futures were up 0.05 percent at $1.336.40 a troy ounce as of 05:30 GMT.

The yellow metal corrected downwards by the end of Tuesday’s session as the American currency rebounded from three-year lows, although bets on gold remained on the bullish side.

The US dollar index, which measures the greenback against six major currencies, was trading 0.25 percent higher at 90.40 by the time of this writing.

The economic calendar was quite empty yesterday, with attention directed mainly to the releases of Germany and the UK consumer price indexes. According to data, the German CPI for December came in line with analysts’ expectations at a monthly rate of 0.6 percent. The UK CPI also matched its forecast at 0.4 percent monthly growth rate.

Meanwhile, in the United States, the New York Empire State manufacturing index for January came in at 17.70 points, falling short from an expected 18.0 points and a prior reading of 19.60.

Overall, bullion prices remain near four-month highs and enthusiasm is far from gone as several analysts estimate growth extension in the short/middle term.

A recent report by the Commitment of Traders (COT) showed that speculative net long positions in gold have increased by 40,000 contracts to a six-week peak of 203,300.

Gold continues to rise despite an increasing interest on risk-on assets which serves in favor of global equities, which currently trade at all-time highs. Some analysts believe a downward correction in gold is likely to take place in mid-2018, as the Federal Reserve moves along with its plan to raise its benchmark interest rate.

Higher interest rates elevate the opportunity cost for investors to hold non-yielding assets such as gold, while promoting demand for the dollar, in which the metal is denominated.

Ahead in the session, traders will be looking ahead to the release of Eurozone’s consumer price index for December at 10:00 GMT, with a 0.9 percent build seen.

In the US, industrial production figures for December are up at 14:15 GMT, followed by Federal Reserve’s Beige Book at 19:00 GMT. Market participants will also monitor speeches by FOMC Robert Kaplan and Loretta Mester as of 20:15 GMT and 21:30 GMT respectively.

OIL

Crude futures were slightly lower in Asian trading hours on Wednesday, as market participants kept an eye on discussions over OPEC-led output cuts and awaited fresh inventories in the US.

The US West Texas Intermediate crude contracts were down 0.06 percent to $63.69 per barrel as of 06:30 GMT. Meanwhile, Brent futures eased 0.06 percent to $69.11 a barrel.

The US Energy Information Administration is expected to release official figures on crude and refined products on Thursday as of 16:00 GMT, a day later than the usual scheduled as markets were closed on Monday in observance of Martin Luther King’s Day holiday.

Later in the session, attention will be directed to crude estimates by the American Petroleum Institute, which are to be released at 21:30 GMT.

Oil prices settled in red territory on Tuesday, easing from three-year highs as many investors opted to take profits. However, a vast majority of traders continues to believe on the upward potential of crude prices on the back of OPEC-led efforts.

“We see that the market is becoming balanced. We see that the market surplus is decreasing, but the market is not completely balanced yet,” he told reporters. “Of course, we need to continue monitoring the situation,” said Russian Energy Minister Alexander Novak.

The Organization of the Petroleum Exporting Countries and a group of independent producers led by Russia agreed back in 2017 to extend its so-called output cuts agreement for a nine-month period following the March 2018 deadline.

Morgan Stanley market analysts have risen its forecast for Brent quotes from $63 per barrel to $75 per barrel for the third-quarter 2018.

“With many equity markets at all-time highs, interest rates still low, and oil prices lagging their usual correlation with inflation this is should keep oil futures well underpinned,” wrote Morgan Stanley in a note to clients.

Fort Financial Services