Nominally the very positive end to trading in commodities on Saturday morning, our time, with big rises for oil and gold, should have been good news generally for investors.
Certainly the near $US24 an ounce bounce for gold will have investors in local gold stocks smiling this morning when trading resumes on the ASX. Look for solid gains for the likes of Newcrest and Northern Star.
And the 6% to 8% jump in oil futures prices early Saturday should also be positive for local producers, such as Woodside and Santos.
But the wider market will be lower – around 24 points according to the futures market.
West Texas type crude (WTI) for March delivery closed up by $US3.71, or 8.3% on Saturday morning, our time, at $US48.24 a barrel in New York.
It was the largest one-day percentage advance since June 2012, coming just one day after the contract traded below the $US44-a-barrel level for the first time in nearly six years.
For the week, the WTI crude jumped 5.8%, leaving it down 9.4% for the month. After January’s slide, WTI has dropped for seven months in a row, and it remains off 55% from its June, 2014 highs.
Meanwhile Brent crude futures prices also jumped, with the March contract rising $US3.86, or 7.9%, at $US52.99 a barrel.
That saw Brent crude gain 8.6% for the week, but it dropped 7.6% for the month.
Friday’s rise saw some analysts suggest oil prices may now be starting to bottom out.
Analysts said another big fall in the number of oil drilling rigs working in the US helped push prices higher as that shows the industry is adjusting more quickly to the price fall
But there’s a sneaking suspicion the rise in the oil price (which seems to have helped gold prices to rise) was triggered by technical factors – Friday was the last trading day for January and there were reports traders who had shorted oil futures closed out their positions (by buying oil contracts) and triggering a rise in the spot price.
A lot of oil companies and other users are storing tens of millions of barrels of oil in tankers at sea or in tank farms on land.
That’s because oil futures are in a position called contango (when the spot price is lower that the distant months). This means it is profitable to buy the oil now and store it and sell in the future at higher prices.
But they also short futures contracts for protection, and every now and then they close these out to generate profits which cover the cost of storing the oil. Much of this happens at the end of each month.
The key will be seeing if oil prices retrace Friday’s gains today and over the rest of this week, or whether they consolidate around the $US48 mark.
In the gold market there’s similar thinking about the coming week – will Friday’s jump be a one off, with a fall in coming days in the lead up to Friday’s US jobs report?
Part of the reason for the sharp rise was the surge in oil prices, but also helping was the weaker than expected 2.6% growth in US GDP in the 4th quarter – a reading which could very well be revised upwards in the next two reports – as we saw with the last couple of quarterly reports in 2014.
Gold gained 8% overall in January – its best since the same month in 2012 after a 1.9% rise on Friday night to settle at $US1,278.50 an ounce. (Silver also rose 2.6% to end the week on $US17.21 an ounce.
Gold prices have risen in the past month as investors sought safe havens in the wake of increased volatility triggered by plunging oil prices, the Swiss central bank’s decision to unpeg the franc against the euro, renewed violence in the Middle East and Ukraine and the election of a leftwing government in Greece.
But it hasn’t been a convincing rise – Thursday, saw gold slide by 2.4% in its biggest drop for 13 months reaffirmed expectations for a midyear rate rise by the Federal Reserve and upbeat economic data.
A solid jobs report on Friday and good data this week could therefore see gold sold off this week.
The U.S. oil benchmark settled sharply higher Friday, though it still finished the month with a big loss. WTI crude for March delivery settled up by $3.71, or 8.3%, at $48.24 a barrel. The U.S. oil benchmark gained 5.8% for the week, leaving it down 9.4% for the month after earlier showing a double-digit percentage decline for January. Analysts said factors behind oil’s advance on Friday included news of a big drop in U.S. rig counts as producers respond to oversupply, as well as short covering on the last day of the month.
West Texas type crude (WTI) for March delivery closed up by $US3.71, or 8.3% n Saturday morning, our time, at $US48.24 a barrel in New York.
It was the largest one-day percentage advance since June 2012, coming just one day after the contract traded below the $US44-a-barrel level for the first time in nearly six years.
For the week, the WTI crude jumped 5.8%, leaving it down 9.4% for the month. After January’s slide, WTI has dropped for seven months in a row, and it remains off 55% from its June, 2014 highs.
In other energy markets, ICE Brent crude, the global oil benchmark, also surged Friday, with the March contract LCOH5, +6.88% settling up by $3.86, or 7.9%, at $52.99 a barrel. Brent gained 8.6% for the week, but dropped 7.6% for the month.
The number of U.S. oil-drilling rigs dropped by 94 in the past week, representing the largest one-week decrease since at least 1987, according to data out Friday from oilfield-services firm Baker Hughes.
The rig-count news, short covering and technical factors helped drive oil higher Friday, said Phil Flynn, senior market analyst at the Price Futures Group. He said his firm had been keep an eye on the $44-a-barrel level for WTI, and that area – “a big support line” ended up holding this week.
Gold rebounded Friday in response to a report showing weaker-than-expected U.S. economic growth, closing out January 8% higher, its best monthly percentage gain since January 2012.
Gold futures for February delivery GCG5, +2.34% rallied $23.90, or 1.9%, to settle at $1,278.50 an ounce. March silver futures SIH5, +2.84% gained 43 cents, or 2.6%, to $17.21 an ounce.
Gold futures strengthened after the Commerce Department said fourth-quarter U.S. gross domestic product expanded at a 2.6% annualized pace, compared with expectations for 3.2% growth.
“The U.S. GDP number released today has clearly shown that the growth is slowing down and this is a positive sign if you are a buyer of gold,” said Naeem Aslam, chief market analyst at London-based AvaTrade.
Gold has gained ground this month as investors sought havens in the wake of turmoil and increased volatility sparked by plunging oil prices and accelerated by the Swiss central bank’s decision to abandon a cap on the value of its currency versus the euro.
On Thursday, gold dropped 2.4% in its biggest one-day decline in 13 months as investors booked profits on reaffirmed expectations for a midyear rate hike by the Federal Reserve and upbeat economic data.
