What’s next? – GOLD, OIL 01.06.18

GOLD

Gold futures traded without a clear direction on Friday morning hours, as market participants digested geopolitical news and looked ahead to fresh labor market figures.

On the Comex division of the New York Mercantile Exchange, gold futures were down 0.06 percent at $1,303.90 a troy ounce as of 08:45 GMT.

Concerns over Italy’s political future continued to ease as the recently elected Prime Minister seemed confident in the formation of a unified government to avoid snap elections.

The US dollar index, which measures the greenback’s strength against a basket of six major competitors, was up 0.01 percent at 93.97 by the time of this writing.

Gold is sensitive to moves in the US dollar. As the metal is denominated in US dollars, a stronger currency makes it more expensive for investors holding other currencies.

Meanwhile, higher uncertainty on Trump’s international policies capped losses. The Trump administration said tariffs on steel and aluminum imports would be applied to Canada, Mexico and the European Union and they become effective by Thursday midnight.

The safe-haven demand also came under pressure as the Trump administration reinforced the idea that the Trump-Kim summit in Singapore remained on track.

Secretary of State Mike Pompeo tweeted: “The proposed summit offers a historic opening for [the President] and Chairman Kim to boldly lead US and DPRK into a new era of peace, prosperity, and security.”

The Labor Department will present its employment figures for May at 12:30 GMT, including nonfarm payrolls, the participation and unemployment rate and average hourly earnings. ISM manufacturing PMI for May is due at 14:00 GMT.

OIL

Oil futures extended losses in early trading hours on Friday, despite market participants digested a drop in US crude supplies last week, while awaiting for a fresh read on the rig count.

Investors were also keeping an eye on the divergence of the two main contracts - the Brent and the WTI - to understand the implications of a divergence which seems to be expanding.

The US West Texas Intermediate crude contracts eased 0.01 percent to $67.03 per barrel as of 08:45 GMT. Meanwhile, Brent futures were up 0.06 percent at $77.61 a barrel.

According to the US Energy Information Administration, crude oil stockpiles fell 3.6 million barrels in the week ended May 25, while analysts had estimated a 525K decrease.

“The report was supportive due to the large drop in crude oil inventories which was a function of a trifecta of bullish elements: strong demand from refiners, a sizeable drop in crude oil imports, and rebound in exports,” John Kilduff, a partner at Again Capital LLC in New York, said.

The agency also said that gasoline inventories increased by 534,000 barrels, while economists had previously anticipated a 1.4 million-barrel drop.

Crude production in the United States is currently standing at 10.73 million barrels per day, which is dangerously close to Russia’s output of nearly 11 million bpd. At the time, Russia is the world’s largest producer, but probably not for much longer.

Meanwhile, traders continued to monitor expectations surrounding the future of the output cuts by the Organization of the Petroleum Exporting Countries and its allies. The cartel is expected to meet in Vienna on June 22 to discuss the viability of the agreement.

FortFS