Iron ore still rising, LNG still wallowing, oil going nowhere after the Saudi cut decision but gold is looking at a big week ahead.
It will be US inflation data and interest rate decisions from the Fed and European Central Bank that will grab traders’ interest – those of gold in particular.
A bull market for equities is no good for gold, hence their enthusiasm for some ‘baddish’ news from the inflation report and the Fed this week.
Comex gold prices added just on 1% last week but Friday saw the metal lose $US1.40 to $US1,977.20 an ounce for August delivery while Comex silver for July delivery rose 6 cents to $US24.41 an ounce and July copper fell a cent to $US3.77 a pound.
Silver added 1.7% for the week, copper around 1.6% – not stunning gains but a bit healthier than in recent week.
Analysts wonder if gold (and to a lesser extent silver) will get any help from the US prices data and the two central banks this week.
Analysts are less bullish on gold in the short term, citing risks of more Fed rate hikes and higher US dollar weighing on the precious metal.
“Gold is vulnerable after trading in a fairly muted range,” TD Securities senior commodity strategist Daniel Ghali told Kitco New on Friday. “All eyes are on the rate decision. And the outlook implied by the stamens of economic projections.”
Normally gold should have received a nice fillip by the news late last week that China added more gold for a seventh month in a row to its foreign reserves.
Beijing bought 14.1 tonnes or 500,000 ounces in May. That compared with the 8.09 tonnes added in July.
According to data from the People’s Bank of China and China’s foreign exchange authority, the total gold stockpile now sits at about 2,092 tones, after adding a total of 144 tons from November through last month.
Analysts are watching to see if the worsening health of the Turkish economy and its falling reserves, force it to sell off some of its gold holdings. China has bought a lot of gold in the seven months.
Turkey has been the biggest buyer of gold in recent years. World Gold Council data shows that Turkey was again a big buyer of gold during the March quarter this year with official reserves rose by 30 tonnes.
Combined purchases of 45 tonnes in January (23 tonnes in January alone) and February were offset by a sale in March – the first since November 2021.
Some 15 tonnes of gold were sold into the local market following a temporary partial ban on gold bullion imports. Overall, this lifted total gold reserves to 572 tonnes (34% of total reserves).
In keeping rates unchanged at 5.25% this week, the Fed will be letting the lag effects from string of rate rises the last 15 months take effect. The CME FedWatch Tool is pricing in a 72% chance of a pause at the time of writing. If the Fed does pause, it would be the first ‘on hold’ decision since January 2022.
Analysts think a pause from the Fed will be good for gold.
“For gold, we are going to see more optimism that the Fed is done,” OANDA senior market analyst Edward Moya told Kitco News.
“The Fed seems likely to pause their tightening cycle, and if the updated forecasts remain optimistic that inflation will get a lot closer to target, it could be good news for gold bulls. Gold volatility should be elevated as prices could break out of the $1,950 to $2,000 trading range.”
The oil market ended the week in a confused state – the production cuts from OPEC+ were extended to the end of 2024 9showing the level of fear about the prospect for future demand).
The Saudis added 500,000 barrels a day (bpd) to the existing cuts of 3.16 million bpd but it then emerged that was a cut for July, but could be continued for as long as the Saudis deem necessary.
Benchmark US West Texas Intermedia style crude oil for July delivery fell $US1.12 to $US70.17 a barrel Friday. Brent crude for August delivery fell $US1.17 to $US74.79 a barrel.
That left WTI down 2.1% from the previous Friday (before the latest OPEC+ decision) and Brent was down 1.6%. Confusion reigns, especially with rumours of improving relations between Iran and the US with talk of a deal on Iran’s nuclear monitoring program.
If that was to happen, then oil prices could be whacked if Iran brings more oil to the market.
If this happens it would also be a major embarrassment for China which has tried to get Iran and the Saudis talking and indeed have boasted about their efforts.
The message is clear: investors remain preoccupied by fears of recession, to the detriment of a tighter oil market.
At the same time, the latest data from China might be rather reassuring, with oil imports up 17% month-on-month, but it was all to do with the lengthy Chinese buying and shipping schedule, especially for Russian oil and the end of the seasonal maintenance programs at many Chinese refineries and terminals.
The health of Chinese domestic economic activity doesn’t support any optimism for global demand at the moment
The number of oil rigs operating in the US rose by one this week, according to data compiled by energy-services firm Baker Hughes (BKR).
Meanwhile a small reversal in the recent fall in US oil rig usage figures last week, but not gas where there was another fall.
Baker Hughes sad the oil count to 556 from 555 the week prior, while the tally for gas decreased by two to 135.
Miscellaneous rigs remained unchanged on a weekly basis at four, Baker Hughes said Friday.
A year earlier, the US had 580 oil rigs, 151 gas rigs and two miscellaneous rigs in operation.
Overall, there were 695 rigs operating in the US last week, compared with 733 last year.
West Texas Intermediate crude fell 1.4% late Friday afternoon, extending the futures’ selloff to the second straight day “amid fears that a possible US-Iran nuclear deal would pave the way for more supply hitting the market,” ANZ analysts said in a Friday note.
Media outlets in the Middle East reported that Iran and the US are making progress in their discussions to potentially restore the 2015 nuclear deal. That could potentially lead to the removal of sanctions that have curtailed exports of Iranian oil, ANZ wrote.
“The reaction to the news highlights the strength of bearish sentiment across the market,” ANZ said. However, Reuters reported on Thursday that both countries denied nearing an interim nuclear deal.
The US Department of Energy said on Friday it awarded supply contracts to five companies to deliver 3 million barrels of crude oil to the Strategic Petroleum Reserve in August at an average price of $US73 per barrel.
“These 3 million barrels are being purchased for an average price of about $73 per barrel, lower than the average of about $95 per barrel that SPR crude was sold for in 2022, securing a good deal for taxpayers,” the DOE said in a press release.
The department also said it launched a new solicitation for another 3 million barrels for delivery in September. It said bids should be received by June 20, with awards by the end of the month.
The Biden administration last year conducted the largest ever sale from the Reserve of 180 million barrels, part of a strategy to stabilise volatile oil markets and combat high pump prices in the aftermath of Russia’s invasion of Ukraine.
The iron ore boomlet continued on Friday with the SGX futures price for 62% Fe fines delivered to northern China rising more than 8% to $US112.60 a tonne on Friday from $US103.90 the week before.
Friday’s close on the SGX was the highest since mid-April and comes as iron ore imports last month again topped 90 million tonnes (96 million tonnes).
Chinese September iron ore futures, the most traded on the Dalian Commodity Exchange, rose 5.7% from the previous week – up to 812 yuan/t ($1US14.03/t) for the June 2-9.
It was the second weekly rise in prices and is really from pressure by punters who reckon the worsening state of the Chinese economy – especially property – will see a big stimulus package revealed which will boost demand for steel and therefore for iron ore.
Sustained growth in iron ore consumption and market prices requires further economic recovery measures from the Chinese government and especially President Xi Jinping.
Citi analysts said last week that “Given the recent disappointing macro indicators, the key question remains whether Beijing has felt enough pain and whether the government is ready to move away from a spontaneous recovery to stimulate the economy.”
Coking coal prices haven’t reacted – the SGX market for premium Australian coal eased a couple of dollars a tonne last week to $US225.50 a tonne.
And there was no movement in LNG prices in Asia with the JKM price settled at $US9.20 a million British thermal units, which is around where it ended the week before.
Iron ore prices will be tested again this week with Thursday’s final May economic data release from China – especially the production and investment figures.