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Precious Metals & Energy – Weekly Review and Calendar Ahead

(C) Reuters

By Barani Krishnan — Is gold on the way to $1,800 an ounce?

And will it continue advancing from there?

Those questions are probably on everyone’s mind after gold futures on Comex and the spot price of bullion both hit 7-week highs above $1,780 on Friday for their strongest week since mid-December.

Gold’s resurgence came as U.S. bond yields plunged amid a hike in consumer prices that reasserted the yellow metal’s diminished role as a hedge against inflation.

Sweeping sanctions on Russia imposed by the United States on Thursday also brought gold back — in the eyes of some, at least — as a protection against political risk. The last time gold prices reacted to a geopolitical situation was during the January 2020 assassination of Qassem Soleimani, Iran’s top general, who was killed in a U.S. strike ordered by Biden’s predecessor Donald Trump.

The breakout of the Covid-19 after the Soleimani assassination whittled down international conflicts to almost zero for the rest of 2020, until the November killing of nuclear scientist Mohsen Fakhrizadeh — again, an Iranian — in a hit linked to Israeli forces. That incident barely made a ripple on the gold market.

With President Joseph Biden taking office in January, new U.S.-Russia rumblings have begun and tensions have escalated in the Middle East involving Iranian, Saudi, Turkish and Israeli actors. None of these made a material impact on gold until this week’s sanctions on Moscow.

While longs in gold are now banking on a return to $1,800, they are probably mindful that this wouldn’t be their first attempt since losing that pricing threshold in mid-February. The multiple failed attempts indicate potential volatility that could complicate gold’s steady advance and sustenance even if it got to $1,800.

“The bullish close on weekly charts asserts gold’s willingness to continue its move up to $1,800-$1,805 and even extend to $1,830,” said Sunil Kumar Dixit at SK Dixit Charting in Kolkata, India.

“That said, volatility at those highs could spark correction that pushes gold down to support areas of $1,755-$1,730, and again bring buyers seeking value.”

Dixit isn’t alone in seeing choppy times for gold.

Justin Low said in a post on ForexLive on Friday that gold cracked the $1,780 resistance mainly due to a tumble in U.S. bond yields — a dynamic which may not last.

Another — and bigger — problem is the continued lack of institutional support for gold in the form of ETFs, he said.

Gold’s biggest ETF, SPDR Gold Shares (NYSE:GLD), saw its holdings decline to 32.886 million on Friday – the lowest since 16 April last year.

“(There) continues to reflect a lack of interest and buying appetite for gold, which is likely to drag prices lower down the line,” Low said.

“The chart is advocating stronger momentum for buyers now, with further resistance seen closer to the 38.2 retracement level near $1,785 and then $1,800 level with the 100-day moving average nearby,” he added. “Eventually something’s gotta give, and if investor appetite still isn’t going to return in a significant manner, gold’s latest technical upside may be rather limited.”

Metals Focus also said yields will be the dominant force behind gold prices for the rest of the year.

“While several geopolitical events have the potential to escalate, including on the Ukrainian border, more important for the gold price will be the still supportive macro backdrop,” the metals trading advisory said.

“Monetary and fiscal policies, including the persistence of ultra-low interest rates and negative real yields, and concerns about future inflation will continue to make the case for strong gold investment for the foreseeable future.”

U.S. bond yields, measured by the 10-year Treasury note, hovered at 1.58% on Friday, markedly lower from a 14-month high of 1.77% on March 30.

“It would appear that the bond market is finally buying into the Fed’s low-for longer verse which would be supportive of non-yielding gold,” said Sophie Griffiths, research head for the U.K. and EMEA at online broker OANDA.

Since the start of this year, gold has faced continuous headwinds as the dollar and bond yields often surged on the argument that U.S. economic recovery from the pandemic could exceed expectations, leading to fears of spiraling inflation as the Federal Reserve kept interest rates at near zero.

Adding to gold’s strength was a weaker dollar, which typically boosted the yellow metal. The Dollar Index, which pits the greenback against the euro and five other major currencies, weakened to 91.56 versus Wednesday’s settlement of 91.62.

Gold had a scorching run in mid-2020 when it rose from March lows of under $1,500 to reach record highs of nearly $2,100 by August, responding to inflationary concerns sparked by the first U.S. fiscal relief of $3 trillion approved for the coronavirus pandemic.

Breakthroughs in vaccine development since November, along with optimism of economic recovery, however, forced gold to close 2020 trading at just below $1,900.

This year, the rut worsened as gold fell first to $1,800 levels in January, then collapsed to below $1,660 at one point in March.

Such weakness in gold is remarkable if considered from the perspective of the Covid-19 stimulus of $1.9 trillion passed by Congress in March, and the Biden administration’s plans for an additional infrastructure spending of $2.2 trillion.

Typically, stimulus measures lead to dollar debasement and inflation that sends gold rallying as an inflation hedge. But logic-suspending selloffs instead took place in gold over the past six months, with some Wall Street banks lending inane commentary to support these.

Gold Price Roundup

Benchmark gold futures on New York’s Comex did a final trade of $1,744.60 before the weekend, after settling Friday’s trade at $1,780.20, up $13.40, or 0.8%. It earlier scaled a seven-week high of $1,784.55, making its first return to $1,780 pricing since Feb. 26. For the week, Comex gold rose 2.1% for its strongest week in four months.

The spot price of gold settled at $1,776.37, up $12.46, or 0.7%, after a seven-week high of 1,783.83. For the week, spot gold rose 1.9%. Moves in spot gold are integral to fund managers, who sometimes rely more on it than futures for direction.

Oil Market Brief & Price Roundup

Oil prices settled up 6% on the week, helped by unexpectedly large U.S. crude drawdown. But volatility could return to the market as worries about the impact of Covid-19 variants counter signs of improving fuel demand, analysts warned.

Bullish U.S. economic data — including a spike in retail sales and housing starts and tumble in jobless claims — are giving investors in oil and other risk assets optimism of better-than-expected recovery from the coronavirus pandemic.

But that confidence is also being offset by a surge in hospital visits by teens and young adults, many carrying the B.1.1.7, the coronavirus variant first identified in the U.K. that public health officials say is now the most common strain circulating in the U.S. The variant is highly contagious, thought to be about 60% more transmissible than the original strain of the virus.

The matter was concerning enough for the White House to announce on Friday that it was setting aside $1.7 billion to monitor, track, and defeat emerging Covid-19 variants threatening pockets of the country.

U.S. authorities also paused this week the use of Johnson & Johnson’s (NYSE:JNJ) Covid-19 vaccine after reports of blood clots in recipients. Moderna (NASDAQ:MRNA), meanwhile, said it will fall short of its vaccine delivery targets for the U.K. and Canada.

Despite their advance on the week, crude prices could go back to reflecting “the increasing risks of new variants” and other issues around the pandemic, said Ed Moya, head of U.S. research at online broker OANDA.

That could result in a return of volatility, said some market participants.

“We’re still not out of the woods yet for record highs in new infections,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “Any surge in Covid numbers or regress in vaccines could pressure oil prices into a new round of swings.”

New York-traded West Texas Intermediate, the benchmark for U.S. crude, did a final trade of $63.08 per barrel before the weekend. WTI settled Friday’s trade at $63.16, up 33 cents, or 0.5%. For the week, it rose 6.4%, its largest advance since the week ended Feb. 26.

London-traded Brent, the global benchmark for crude, did a final trade of $66.71 per barrel before the weekend. Brent settled Friday’s trade at $66.77, down 17 cents or 0.3%. It gained 6.7% for the week, its most since the week ended Jan. 29.

Bullish supply-demand numbers for oil released by the U.S. Energy Information Administration on Wednesday helped WTI break away this week from being boxed-in at between $57 and $60 and Brent unshackle itself from a $61 to $63 range.

U.S. crude stockpiles dropped 5.899 million barrels for the week ended April 9, compared with analysts’ expectations for a draw of 2.889 million barrels, the EIA said.

Gasoline inventories rose 309,000 barrels, compared with expectations for a 786,000-barrel build.

Distillate stockpiles, which include diesel and heating oil, dropped 2.083 million barrels in the week against expectations for a build of 971,000 barrels, the EIA data showed.

The better supply-demand numbers coincided with a spike in traffic noted in key U.S. urban areas over the past week as many of the country’s 50 states pressed on with economic reopenings from the pandemic, helped by a dynamic federal vaccine program.

The Paris-based International Energy Agency also raised this week its 2021 global oil demand forecast by 230,000 barrels a day to 5.7 million bpd. The Organization of the Petroleum Exporting Countries, meanwhile, upped its demand expectations for the year by 100,000 bpd.

Energy Markets Calendar Ahead

Monday, April 19

Private Cushing stockpile estimates

Tuesday, April 20

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, April 21

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, April 22

EIA weekly report on {{ecl-386||natural gas storage}

Friday, April 23

Baker Hughes weekly survey on U.S. oil rigs

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

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