What’s next? – GOLD, OIL 01.05.18

GOLD

Gold futures were down in early trading hours on Tuesday as the American currency continued to grow. Most Asian markets remained closed due to national holidays.

On the Comex division of the New York Mercantile Exchange, gold futures were down 0.56 percent at $1.311.80 a troy ounce as of 8:15 GMT.

The yellow metal ended the previous session in red territory as the dollar extended gains on the back of lower Treasury bond yields and as geopolitical tensions eased.

The US 10-year bond yield remained below 3 percent despite data suggesting inflation is nearing Federal Reserve’s target and further monetary policy adjustments might come soon.

The personal consumption expenditures (PCE) price index - Fed’s favorite inflation gauge - added 1.9 percent year over year in March, close to the regulator’s 2 percent target.

This result came only a day before the Federal Reserve Open Market Committee (FOMC) kicked off a new two-day monetary policy meeting.

However, Fed funds tracked by CME Group’s FedWatch program show a vast majority of market participants aren’t waiting for interest rate changes this month.

The Federal Reserve hike interest rates in March by 25 basis points, leaving it in a range between 1.50 percent and 1.75 percent. Two more rate moves are seen in 2018.

Dollar-denominated gold is sensitive to moves in US rates. A rising interest rate environment increases demand for the dollar, making gold more expensive for holders of foreign currency, while damping demand for the safe-haven asset.

According to CFTC COT data, money managers cut their net long positions in gold futures to 136,600 lots from 166,300 lots for the week ended April 24.

Ahead in today’s session, Markit Economics will present April manufacturing activity index at 13:45 GMT. The Institute for Supply Management will release its own manufacturing PMI fifteen minutes later. The American Petroleum Institute is expected to release its weekly report on crude and refined products stockpiles by 20:30 GMT.

OIL

Crude oil prices were higher on Tuesday, supported by remarks from Israeli Prime Minister Benjamin Netanyahu assuring that US President Donald Trump would do "the right thing" in reviewing Iran's nuclear agreement.

The US West Texas Intermediate crude contracts eased 0.16 percent to $68.46 per barrel as of 08:50 GMT. Meanwhile, Brent futures were 0.29 percent lower at $74.47 a barrel.

In Asia, oil prices were quiet as trading volumes remained below average, with most markets closed for holidays. Sentiment was supported by Israel’s position on Iran.

On Monday, Netanyahu added pressure to the Trump administration to cancel the 2015 nuclear deal with Iran, exposing evidence of a secret Iranian nuclear weapons program.

Britain, France and Germany have until May 12 to review the deal and underline its flaws. President Donald Trump is expected to take a decision on whether to pull out of the deal or not in the next two weeks.

According to Tomomichi Akuta, a senior economist at Mitsubishi UFJ Research and Consulting in Tokyo, "if the deal were not renewed, Iranian oil exports could plunge, which would lead to a complete supply shortage, [...] If that happened, Brent prices could jump to near $90 (a barrel)."

Meanwhile, US crude production continues to rise. The Energy Information Administration said Monday production levels rose 260,000 bpd to a record high of 10.26 million bpd in February.

In other news, Brazil's Petrobras said its Tartaruga Verde e Mestica offshore platform is expected to start operating by the end of June, which could help the company add up to 500,000 barrels per day of new oil output next year.

The American Petroleum Institute is expected to release its weekly report on crude and refined products stockpiles by 20:30 GMT.

FortFS