Commodities Corner: All that Sputters is Gold

By Glenn Dyer | More Articles by Glenn Dyer

Watch the share prices of local gold and oil companies today because they will come under a lot of downward pressure after global prices retreated on Friday – especially gold.

Gold miners will struggle on the ASX today after prices slumped on Friday after the much better US jobs report for July saw bond yields and the US dollar both rise sharply – factors which always batter gold prices lower.

That saw Comex gold futures suffer their largest fall in months as the price slid 2.6% to settle at $US1,763.10 an ounce – a fall of $US45 on the day. Silver futures also slumped on Comex, down 3.8% to $US23.30 an ounce at the end.

But Comex copper resisted the panic selling and only dipped less than 0.4% to $US4.33 a pound.

The US Bureau of Labor Statistics July report showed 943,000 new jobs were filled in the month while the unemployment rate dropped to 5.4%. The increase in payrolls was the best since August 2020.

Adding to the bullishness though was 119,000 extra jobs were found to have been created in the two preceding months – May’s numbers were revised up by 31,000 to 614,000, while the June count increased by 88,000 to 938,000.

For local investors, the prices of a string of gold miners will come under selling pressure today – Newcrest, St Barbara, North Star, Evolution and the like. Not even some of their copper operations will be enough to offset the now usual sell reaction after a big fall in gold prices.

The slide in gold and silver prices tells us that speculators were driven out of the metals by the sharp rise in bond yields which saw the 10-year Treasury bond yield leap more than 8 points to 1.31% before settling back at 1.30%.

The yield had touched a recent low of 1.133% earlier in the week as fears about Covid hit bond traders’ confidence. The yield on Australian bonds closed at 1.18% for the 10-year note, up 4 points on the day but down over the week.

The decision by the Reserve bank to still wind back its bond buying later this year didn’t worry investors – $4 billion of Quantitative easing will still be there which will be handy as economic growth slows.

The US dollar jumped – the Aussie dollar fell back to just over 73.50 – down around half a cent.

A critical level for gold to hold is the $1,754 an ounce, said Phoenix Futures and Options LLC president Kevin Grady. “We should see a bounce from these levels,” he said. “But I do think that gold is not trading well. Gold had a prime fertile ground to explode. And it couldn’t break $2,000 and hold it,” he told Kitco.

This is likely a temporary setback for gold, but the precious metal could fall below $1,730 an ounce on this trend, said TD Securities.

“Gold should continue to face selling pressure post the payrolls data, as many in the market will think that the Fed has the appropriate environment to start taper in early-22 or even December 2021, TD Securities analysts wrote.

But they also pointed out that the Delta variant represents an upside risk gold (and a lot of other things in markets and economies). “An outright gold rout is unlikely for now. There are still some negatives coming from the Delta variant. The TDS tactical target is $1,730/oz,” they wrote.

After Friday’s selloff, gold is in a danger zone right now, according to OANDA senior market analyst Edward Moya.

“Gold may find some support from the $1,750 level, but if that breaks, prices could tumble towards the psychological $1,700 level,” Moya said.


And similar advice for local oil and gas companies which as Santos and its would-be bride, Oil Search, Woodside and Beach Energy, not to mention BHP after oil suffered its largest weekly fall in 9 months last week.

That was after oil prices fell about 1% on Friday on worries that travel restrictions to curb the spread of the Delta variant of COVID-19 will damage the global recovery in energy demand.

The solid rise in new jobs for July and extra new jobs for June and May also pressures prices lower.

The report saw the US dollar strengthen which put further downward pressure on prices.

As a result, Brent crude oil futures settled down 59 cents, or 0.8%, at $US70.70 a barrel, while in New York, West Texas Intermediate (WTI) crude futures fell 81, or 1.2%, to settle at $68.28 a barrel.

For the week, Brent shed more than 6%, its largest week of losses in four months, and WTI tumbled nearly 7% in its biggest weekly decline in nine months.

US crude prices have corrected as a result of last week’s fall and are now down 24% from the peak in May.

US rig numbers rose – there were two extra oil directed rigs for a new recent high of 387.

Oil traders seem to be more aware of the continuing rise in Covid Delta infections that sharemarket traders are.

Oil dealers noticed Japan’s extension of a state of emergency in and around Tokyo, and for other parts of the country for after the games; in the US infections continue to rise and President Biden described it as a ‘pandemic of the unvaccinated’ as case numbers hit a six-month high.

US infections are now running at more than 160,000 a day the highest daily rate for six months.

And China, the world’s second-largest oil consumer, has imposed curbs in some cities and cancelled flights and still reported rising case numbers – low less than 80 a day, but rising.

“Increased travel restrictions in China have come under the microscope of traders and could become a key oil price mover as this month proceeds,” one trader told Reuters.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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