What’s next? – GOLD, OIL 01.03.18

GOLD

Gold prices were down in Asian trading hours on Thursday, with investors awaiting for fresh economic reports later in the session.

On the Comex division of the New York Mercantile Exchange, gold futures were down 0.21 percent at $1.315.10 a troy ounce as of 07:50 GMT.

The yellow metal showed little movement in late trading hours on Wednesday, although sentiment remained weak as expectations for Federal Reserve rate hikes continued to grow.

According to Fed funds tracked by CME Group’s FedWatch program, market participants are currently weighing an 85 percent probability of a 25 basis-point rate hike by March.

The American currency and Treasury bond yields weighed on the metal after Fed Chair Jerome Powell opted for a more hawkish vision on the future of the economy and inflationary pressure.

The US dollar index, which measures the greenback against six major currencies, was trading 0.02 percent higher at 90.57 by the time of this writing.

A stronger dollar tends to reduce demand for the metal as it makes it more expensive for investors holding foreign currencies, while higher rates elevate the opportunity cost of keeping non-yielding assets such as gold in portfolio.

Despite the regulator anticipated three rate hikes in 2018, Powell’s speech boosted speculation that there might be as much as four rate moves this year. In that scenario, rates, which currently stand in a range between 1.25 and 1.50 percent would end between 2.25 and 2.50 percent.

The US fourth-quarter gross domestic product came in line with analysts’ expectations at a quarterly growth rate of 2.5 percent against a prior 2.6 percent.

In other news, pending home sales plunged 4.7 percent in January. This result took investors by surprise as economists had estimated a 0.4 percent build.

In today’s session, attention will be directed to the PCE price index, initial jobless claims and personal spending figures at 13:30 GMT, followed by a fresh look at the manufacturing PMI at 14:45 GMT and ISM manufacturing PMI fifteen minutes later.

Also, the Federal Reserve will release its Beige Book at 19:00 GMT. Fed Chair Jerome Powell will testify before Congress for the second time this week as of 15:00 GMT.

OIL

Oil benchmarks were up in early trading hours on Thursday, with an unexpected build in US inventories offering strong support to prices.

The US West Texas Intermediate crude contracts were up 0.21 percent to $61.77 per barrel as of 07:50 GMT. Meanwhile, Brent futures soared 0.28 percent to $64.91 a barrel.

Crude benchmarks settled in red territory on Wednesday as official inventory data showed a large increase in both crude and refined products stockpiles.

According to the US Energy Information Administration, crude inventories for the week ended February 23 rose 2.4 million barrels.

The report also showed gasoline supplies spiking by 2.483 million barrels, against expectations for a 190,000 barrels reduction. Distillate products notched down by 960,000 barrels, more than the 709,000 decline initially estimated.

The agency also said US domestic crude production jumped to 10.3 million barrels per day, which leaves the country close to Russia and Saudi Arabia, current world leaders by output.

News contributed to mix feelings regarding the future effectiveness of output cuts from the Organization of the Petroleum Exporting Countries and Russia.

OPEC and Russia agreed to extend output cuts until the end of 2018, leaving target cuts at 1.8 million barrels per day. All signing parts remain fully committed to the implementation of the deal.

Ahead in the week, investors will focus on the release of Baker Hughes’ oil rig count.

FortFS