Commodities Corner: Maybe a Frown with Gold and Brown

By Glenn Dyer | More Articles by Glenn Dyer

Oil went sideways and lost heavily for the week while gold tumbled $US30 on Friday and settled below the critical $US2,000 an ounce level for the first time in April.

Significant volatility in the US dollar and Treasury markets hit gold Friday, as fears about rising interest rates and the health of the economy returned – that saw June Comex gold futures last trading at $US1,990.50 an ounce.

That was a loss of nearly 1.5% for the day and a small drop for the week. The Aussie dollar price fell to around $US2,963 an ounce.

The Fed’s blackout period also began last weekend meaning Federal Reserve officials can’t speak publicly between then and the end of the Fed meeting on May 2-3.

US markets are currently pricing in an 88% chance of a 25-basis-point hike, according to the CME FedWatch Tool.

This week markets will focus on fresh data, including the US first quarter GDP and PCE price index numbers.

“The upcoming U.S. economic data, especially the GDP data and the price deflator for consumer expenditures, being the Fed’s preferred inflation measure, could trigger some price movement,” said Commerzbank analyst Carsten Fritsch in a note on Friday.

On Friday, markets digested stronger-than-expected US manufacturing and service sector data, which weighed on gold. The S&P Global Flash US manufacturing PMI rose to 50.4 in April from March’s reading of 49.2. This marked the first move into expansion territory since last September.

So where does gold go now?

Some traders think a decent support level for gold could emerge at around $US1,962 an ounce, but prices can fall further if the economic data and Fed decision next week aren’t seen as being helpful.

The May hike looks increasingly likely to be the last interest rate increase, according to Capital Economics deputy chief US economist Andrew Hunter.

“We are increasingly confident that the May rate hike will prove to be the last of this cycle … [And] our expectation that rates will be cut again late this year.

“That’s based on our long-standing view that the economy is headed for recession, eventually dragging inflation down more quickly than the Fed is allowing for,” he wrote on Friday.

“Gold’s long-term bullish outlook is still very much intact. And as soon as markets settle on when the Fed pauses, gold will rally.”

Comex silver fell last week, losing 1.4% and ending at $US25.15 an ounce. Comex copper dipped under the $US4 a pound mark to finish at $US3.98 a pound. That was a loss of 3.1% for the week.

Iron ore prices continued weakening and ended at $US108.10 a tonne for 62% Fe fines delivered to northern China.

That was down around $US8 or nearly 7% over the week. Australian premium coking coal fell $US20 a tonne on the SGX market to end Friday at $US252 a tonne.

The current (April) contract for Newcastle thermal coal rose 1.25% to just over $US199 a tonne. Further out prices were up around 5% to $US212 a tonne.


Oil prices edged higher on Friday on strong economic data in the euro zone and Britain, but futures fell for the week as interest rate and demand uncertainty returned.

Brent futures settled up 56 cents at US81.66 a barrel. US West Texas Intermediate crude (WTI) rose 50 cents to $US77.87 per barrel.

But Brent posted a weekly loss of 5.4%, while WTI fell 5.6%, ending several weeks of gains after the OPEC+ production cut.

Both crude benchmarks lost more than 2% on Thursday – to their lowest since the OPEC cuts in early April.

The euro zone economic recovery has unexpectedly gathered pace this month as the bloc’s dominant services industry saw already-buoyant demand rise, more than offsetting a deepening downturn in manufacturing, surveys showed.

“It looks like the economy is rebounding from a feeble winter at the moment, but manufacturing weakness remains a concern and dampens the upturn,” ING economics said in a note.

British businesses also reported a bounce in activity and the slowest input cost inflation in more than two years, an industry survey showed.

“The foreseeable tightening of supply is likely to push prices up in the medium term,” Commerzbank said in a note.

The Federal Reserve, the Bank of England and the European Central Bank are all expected to raise rates when they meet in the first weeks of May.

Meanwhile Baker Hughes’ weekly rig count report, rose five to 753 in the week to April 21.

The firm said that puts the total rig count up 58, or 8%, over this time last year.

Oil rigs rose three to 591 this week, while gas rigs increased two to 159.

It was the first rise in rig numbers in four weeks.

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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