Gold futures declined on Friday, to post a loss of nearly 5% for the week—the largest weekly percentage loss since mid-March. Gold traders have had significant losses on the precious metal to the strength in the U.S. dollar this week.
What we know: Gold futures prices settled at $1.866.30/ounce, showing a loss of 0.56% at the last trading session of the week.
Rising COVID-19 caseloads in emerged markets have distorted investment strategies of global investors, as the world’s economic recovery seems to be fragile, driving investors into dollars, which has weighed on the bullion-asset.
On top of that, gold traders have also unwound some of their gold holdings as a part of this week’s equity-market sell-offs, which added to the pressures around precious metals.
Other precious metals such as palladium, platinum are also headed for their worst week since the COVID-19 pandemic began to impact financial markets.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to our source, highlighted the key macros dampening the optimism of gold bull.
“Gold investors remain less than flattered by the procession of Fed speakers since the FOMC less dovish than expected retort on September 16.
“Most of the focus was still falling on the US Fed’s Charles Evans’ uncomplimentary for gold comments when he suggested that US interest rates go up before the 2% inflation target is hit.”
That said, the outlook remains positive for gold in the long term, on growing COVID-19 cases; also, high geopolitical uncertainty could keep the yellow metal above $1,700/ounce price level in the midterm.
Oil prices plunge on fears OPEC+ may increase Oil supply
Oil traders are becoming wary that OPEC+ will increase oil output and further distort the energy demand/supply dynamics.
Oil prices lost more than a percent at the second trading session of the week. Oil traders are virtually going to extend short on concern that OPEC may agree to increase global supply in a meeting this week and Chinese demand may be dropping.
At the time of writing this report, Brent crude dropped by 1.2%, to trade at $62.91 after losing 1.1% in the past day. U.S. West Texas Intermediate (WTI) crude dropped by 1.2%, to trade at$59.90 a barrel, having lost 1.4% on Monday.
Oil traders are becoming wary that OPEC and its allies, a group often referred to as OPEC+, will increase oil output and further distort the energy demand/supply dynamics.
The group meets is scheduled to hold on Thursday as discussions might include allowing as much as 1.5 million barrels per day of crude oil back into the market.
Stephen Innes, Chief Global Market Strategist at Axi in a note to our source explained why the OPEC+ meeting matters most to many oil traders.
“Constructive oil market fundamentals have blown slightly off course ahead of the OPEC + meeting on Thursday as oil prices took to the plunge pool overnight, with Brent back to the soft US$63 handle after trading as high as $66.82 only last Thursday.
“Commodities were mostly weak overnight as the dollar regained a bit of ground. OPEC+ will meet this Thursday, and expectations are that despite Saudi Arabia’s call for caution, most members will push for an increase in output,” Innes stated.
Bottom line: energy pundits expect the all-important meeting this week in being one of the most interesting oil meetings in Q1, with Saudi Arabia urging producers to remain “extremely cautious”.
Gold posts worst monthly decline since 2016, as U.S dollar keeps rising
The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support.
Gold has of late been under immense pressure, as the Dollar Index surged to a one-week high of 90.8. The safe-haven currency is an outright alternative to gold and typically pressures gold when it gains.
The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support at the last trading session of the week, following most commodities and global stocks lower for a second straight day as global investors readjusted their portfolios.
With Friday being the last trading session for the month of February, it wrapped up the month with a 6.6% decline, its worst since a 7.2% decline in November 2016.
Gold for April delivery lost about 2.6% to settle at $1,728.80 per ounce. It earlier plunged to $1,715.05, its lowest point since a June 8 bottom of $1,700.10.
For the week, the precious metal contract lost about 2.7% in value, following through with the previous week’s drop of 2.5%.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to our source, spoke on other prevailing macros weighing heavily on gold prices
“The rise in real yields has seen gold under pressure with everyone selling. Although positioning is cleaner, the overall market is still long, and ETF selling negatively affects the market on actual position clean out rather than just speculative sell-off. Which is more worryingly an early sign of a capitulation.”
Gold traders are not keen on going bullish, at least for the near term, on the bias that rising U.S Treasury yields see investors showing less interest in the yellow metal.
Gold maintains shine after advancing for two days
The bullion asset regained its lustre after a 2.2% drop recorded in the past week,
Gold stayed on course at the second trading session of the week after advancing for two days, as metal traders awaited testimony from U.S Fed Chief, Jerome Powell.
At the time of drafting this report, the bullion asset traded at $1,807.24 an ounce after rising 1.9% over two days.
The U.S Fed Chief’s semi-annual report at the U.S congress today and the next day will be monitored by metal traders for further policy guidance, and his assessment of the economic recovery at the world’s largest economy.
The bullion asset regained its lustre after a 2.2% drop recorded in the past week, as traders refocus on rising inflation expectations.
In an explanatory note to Our source, Stephen Innes, Chief Global Market Strategist at Axi, gave valuable insights on how the precious metal managed to stay above the $ 1,800-ounce price level.
“It was a strange world seeing the commodity locomotive racing at full steam, but gold left-back at the station. But correlations are looking more normal today after yesterday morning signal gold was trading slightly higher in delayed response to USD weakness. A weaker US dollar remains one of the primary lift-off balloons.
Gold built on Friday’s modest rally, clearing and holding above the USD1,800/oz level. USD weakness was likely the key factor behind gold’s recovery.”
What to expect: The U.S congress may vote on the US$1.9 trillion stimulus package in the coming days, which should hold gold’s appeal as inflation concerns and reflation appeal suggest gold is a good hedge.