What’s next? – GOLD, OIL 18.01.18

GOLD

Gold futures traded in red territory in early trading hours on Thursday, as the dollar rebounded across the board, adding pressure to safe-haven demand. On the Comex division of the New York Mercantile Exchange, gold futures were down 0.81 percent at $1.328.40 a troy ounce as of 06:30 GMT.

The yellow metal continued to trade near four-month highs on Wednesday as most players believe bullion prices would remain high as a weakening dollar sabotages Fed’s plans to increase interest rates in the near future.

“We expect gold will shrug off worries of fundamental downside amidst the unwind of accommodative central bank policy, and that the market premium over fair value will widen,” a Deutsche Bank representative said on Wednesday.

The financial institution is currently expecting gold prices to be at around $1,283 per ounce in 2018, a quote that takes into account four potential interest rate moves during the year.

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.

The dollar is playing a huge role for the metal nowadays. Gold is denominated in US dollars, so a weaker base currency makes it more attractive for investors holding foreign currencies.

The US dollar index, which measures the greenback against six major currencies, was trading 0.30 percent higher at 90.58 by the time of this writing.

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.

US industrial production rose by 0.9 percent in December, above an estimated 0.4 percent build.

Ahead in today’s session focus will be at building permits and housing starts for December, as well as initial jobless claims and the Philly manufacturing index. All coming at 13:30 GMT.

OIL

Crude futures were down in early trading hours on Thursday, with market players awaiting official inventories on crude and refined products stockpiles later in the day.

The US West Texas Intermediate crude contracts were down 0.05 percent to $63.94 per barrel as of 06:30 GMT. Meanwhile, Brent futures eased 0.01 percent to $69.37 a barrel.

Oil prices settle in green territory on Wednesday following positive remarks over the OPEC-led agreement, which for the time being will remain on.

Kuwaiti energy minister Bakheet Al-Rashidi recognized on Wednesday that the oil market was “stable” and said he expected output cuts to remain active “no matter the price.”

Those comments served to reduce worries among investors over a potential discussion to begin a progressive downscaling of the cuts.

Earlier this week, Russian energy minister Alexander Novak said the matter would soon have to be discussed by those producers taking part of the deal.

In other news, Goldman Sachs said shale producers in the US are gaining big, taking advantage of quotes as their cost per barrels remains between $50-$55.

Meanwhile, Morgan Stanley identified a few factors currently being weighed by oil prices, especially low interest rates and its correlation with inflation. This bank forecasts Brent at $75 per barrel for the third-quarter of this year.

Inventories estimates by the American Petroleum Institute showed crude reserves falling more than initially expected at 5.12 million barrels in the week ended January 12.

Ahead in the day, the US Energy Information Administration will release official figures on crude and refined products 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.

Fort Financial Services