What’s next? – GOLD, OIL 21.03.18

GOLD

Gold prices were higher in Asian hours on Wednesday, with all eyes pointing at the Federal Reserve meeting and words of Jerome Powell.

On the Comex division of the New York Mercantile Exchange, gold futures were up 0.13 percent at $1.313.60 a troy ounce as of 04:40 GMT.

The yellow metal settled lower on Tuesday, with the US dollar extending gains ahead of Fed’s monetary policy announcement.

The US dollar index, which measures the greenback against six major currencies, was trading 0.10 percent lower at 89.86 by the time of this writing.

A rising interest rate environment is negative for the precious metal as it dampens demand for non-yielding assets such as gold, while boosting its base currency, the US dollar.

According to Fed funds CME Group’s FedWatch program, market players are currently pricing in a nearly 94 percent chance of a rate hike this week. It would be the first hike of 2018.

Ahead in the day, market players will be paying attention the release of existing home sales for February at 14:00 GMT and the interest rate decision for March as of 18:00 GMT. Investors will also carefully monitor a speech by Fed Chair Jerome Powell.

In other news, analysts from TDS warned that gold prices could jump if the US regulator opts not to modify the dot plots to the upside during the monetary encounter.

“The probability of another rate hike is being priced at nearly 100%. [...] The big risk for gold now is that the new Fed Chair, Jerome Powell, may strike a more hawkish tone. Given the current equity market weakness, recent lackluster economic data and trade war rhetoric getting louder, we judge that a hawkish tone is not do not warranted at this time. Given recent positioning, if Fed officials do not adjust the dot plots higher, the yellow metal could find a bid and move considerably higher later this week.”

OIL

Oil prices were higher in Asian trading hours on Wednesday, with market players digesting industry crude inventory estimates and looking ahead to official data.

The US West Texas Intermediate crude contracts were up 0.20 percent to $63.67 per barrel as of 04:40 GMT. Meanwhile, Brent futures rose 0.18 percent to $67.54 a barrel.

Crude benchmarks settled near three-week peaks as rising geopolitical tensions in the Middle East offset worries over an increasing US oil production.

Last week, the US Energy Information Administration said US crude output increased to 10.38 million barrels per day, surpassing OPEC’s de-facto leader Saudi Arabia.

Market players are concerned that the Trump administration may toughen sanctions against Iran in the light of a meeting with Saudi Crown Prince Mohammad Bin Salman this week.

“The Iran deal is coming up. It’s probably another month or so, and you’re going to see what I do,” Trump said from the White House on Tuesday.

“Iran has not been treating that part of the world or the world itself appropriately. A lot of bad things are happening in Iran.”

If President Trump decides to scrap the deal, that would lead to re-imposition of sanctions on Iran, disrupting the country’s production.

Ahead in the day, investors will be focusing on official inventory data by the US Energy Information Administration as of 14:30 GMT.

FortFS