Commodities
Gold prices dip as risk appetite ramps up on Fed pause bets
© Reuters.
Investing.com– Gold prices fell in Asian trade on Monday, as any relief over a potential pause in the Federal Reserve’s rate hikes was largely offset by traders selling the yellow metal in favor of more risk-driven assets.
Gold saw some strength last week as weaker-than-expected U.S. data, coupled with less hawkish signals from the Fed spurred deep declines in the dollar and Treasury yields.
But any major upside in the yellow metal was limited, as traders pivoted largely into risk-driven assets such as stocks and currencies. Safe haven demand for the yellow metal was further dented by a declining risk premium on the Israel-Hamas war, even as the conflict showed little signs of de escalating.
Israel rejected calls for a ceasefire, while media reports suggested that Russian mercenary group Wagner was planning to supply air defense systems to Hezbollah.
Concerns over the conflict had driven large gains in gold through October. But with the conflict now appearing unlikely to spill over into the broader Middle East region, traders locked in their profits on the yellow metal.
fell 0.5% to $1,984.24 an ounce, while expiring in December fell 0.4% to $1,991.15 an ounce by 23:11 ET (03:11 GMT).
Gold sees little relief from easing Fed fears
Traders are now pricing in a that the Fed will not hike rates any further. The central bank is also expected to begin trimming rates by as soon as June 2024.
But even with any rate cuts, the Fed has signaled that it will keep its benchmark rate above 5% until at least end-2024.
U.S. rates are likely to stay higher for longer, pressuring non-yielding assets such as gold. This trade had pressured the yellow metal over the past year.
Copper prices surge, China data awaited
Among industrial metals, copper prices saw strong gains on Monday as risk appetite improved.
expiring in December jumped 0.7% to $3.6987 a pound, amid some hopes that an end to the Fed’s hiking cycle will help ease pressure on global industrial activity.
Focus was also squarely on key and data from China, the world’s largest copper importer.
Trade data, which is due on Tuesday, is expected to offer more cues on copper imports in the country, which have stagnated over the past year amid slowing economic growth.
Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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