Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Commodities Week Ahead: Gold Aims To Crack $1,750; Oil To Stay In $60s

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMar 22, 2021 04:57AM ET
www.investing.com/analysis/commodities-week-ahead-gold-aims-to-crack-1750-oil-to-stay-in-60s-200568660
Commodities Week Ahead: Gold Aims To Crack $1,750; Oil To Stay In $60s
By Investing.com (Barani Krishnan/Investing.com)   |  Mar 22, 2021 04:57AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Gold is expected to get above the $1,750 target it missed last week in its aim to return to the $1,800 berth, as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen testify before Congress amid the surge in US bond yields.

Gold Daily
Gold Daily

US crude oil, is, meanwhile, expected to avoid a return below the $60 mark hit last week, as the prospect of more COVID-19 lockdowns in Europe keep concerns about fuel demand on the boil.

Oil Daily
Oil Daily

Powell and Yellen will appear before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday to discuss the health of the US economy and the importance of fiscal and monetary stimulus in the recovery from the pandemic.

There are also more than half a dozen other Fed officials due to speak during the week, including Vice Chairman Richard Clarida, Vice Chairman Randal Quarles, Fed Governor Lael Brainard, and New York Fed President John Williams.

Will Powell Or Yellen Offer Insight Into Tapering?

Aside from their testimony on the economy, investors will also be hoping to glean an insight into how much higher Powell and Yellen would be willing to let Treasury yields go before resorting to what is popularly known as tapering. 

US bonds’ benchmark 10-year Treasury note hit a session high of 1.707% by 12:00 AM ET (4:00 GMT), after Thursday’s 13-month high at 1.754%.

Financial markets have diverged from the Fed’s outlook for monetary policy, pricing in a first rate hike sooner than the central bank expects. This comes amid fears of a runaway recovery in a pandemic-hit economy as the Biden administration’s $1.9 trillion stimulus goes to work.

“Maybe we can see it fall way back to 1.50 (%),” Jim Bianco of Bianco Research said on CNBC, referring to the 10-year Treasury note. “But I wouldn’t consider that anything more than a respite in a move for longer-term for higher-yields.”

Bond yields have surged on the argument that economic recovery in the coming months could extend beyond the Fed expectations, leading to spiralling inflation, as the central bank insists on keeping interest rates at near zero.

The dollar, which typically falls in an environment of heightened inflation fears, also rallied on the same runaway economic recovery logic. The greenback’s status as a reserve currency has bolstered its standing as a safe haven, leading to new long positions being built in the dollar. On Monday, the Dollar Index, pitted against six major currencies, was at 91.98, nearing the key 92 level.

The surging dollar and bond yields have been an anathema to gold, forcing the yellow metal to lose 17% from record highs of nearly $2,100 in August. At 4:00 GMT on Monday, gold futures on New York’s COMEX were almost flat at $1,741.65, recovering from a session low of $1,731.55.

For decades, gold was touted as the best store of value whenever there were worries about inflation. Yet, in recent months, it was deliberately prevented from being the go-to asset for investors as Wall Street banks, hedge funds and other actors shorted the metal while pushing up US bond yields and the dollar instead.

Any indications by the Fed that it will intensify bond buying in the coming months could be just the thing to clamp down on yields and spark a rally in gold. 

But Powell in his monthly news conference on Wednesday declined to give any hint of the central bank adding to its Treasury purchases.

Gold Will Gain More Attention If S&P Weakens

Powell said that as the year progresses, the US jobless rate will likely decline from February’s 6.2% while inflation expands 2.4% amid an overall 6.5% growth in GDP expected in an economy rebounding from a pandemic-stricken 2020. 

Thus, it will be a wait-and-see for further tinkering of Fed policy, he said.

“The next few months will be very tricky in identifying what will be the primary catalysts for bullion investors,” said Ed Moya, analyst at New York’s OANDA. “Wall Street will remain fixated on the bond market selloff and recent disdain for technology stocks.”  

Moya said gold was beginning to gain some investor attention because rising Treasury yields will eventually be countered by action from the Federal Reserve.

“The S&P 500 index won’t be able to climb higher if mega-cap tech stocks don’t get their groove back and any hesitancy in that trade should trigger some safe-haven flows into gold.”

Gold is in a better position now, rising 0.7% month-to-date, after the 9% drop in January through February. But its return to $1,800 and beyond will also be a wait-and-see of the Fed and S&P.

Oil Tries To Find Floor After Weekly Plunge

In oil’s case, New York-traded West Texas Intermediate, the benchmark for US crude, was at $61.22 per barrel by 4:00 GMT, down 22 cents, or 0.4%. 

London-traded Brent, the global benchmark for oil, was at $64.25, down 28 cents or 0.4%.

Crude prices fell 7% last week, the first meaningful drop after a near five-month rally with barely any stops. The run-up was driven by OPEC+ production cuts, the promise of economic reopenings from coronavirus closures and the blockbuster US pandemic relief.

Virtually overlooked in that time was the anemic demand for jet and other transportation fuels as global travel remained heavily curtailed by the pandemic. Europe’s constant struggle with new outbreaks of COVID-19 infections; its alarmingly slow pace of vaccinations; and fresh lockdowns across the bloc were also treated with little seriousness.

On Thursday, however, those concerns came to a head, exacerbated by the 13-month highs in US Treasury yields and the Dollar Index’s spike to near 92. US WTI slumped to $58.20 while Brent fell to $61.45, both a five-week low.

Germany said on Thursday it planned to extend lockdowns to contain COVID-19 infections into a fifth month, after new cases exceeded levels authorities said will cause hospitals to be overstretched.

Said Stephen Innes, chief global market strategist at Axi, as quoted by Reuters:

"The reality is that we're still a long way from a full demand recovery, and it's the record levels of withdrawn production capacity that's the main prop for the oil market." 

US drillers were also starting to take advantage of an earlier spike in prices on optimism about returning demand, adding the most rigs for extracting oil since January in the week through Friday.

The oil drilling rig tally, an early indicator of future production, rose by nine to 318 last week, the highest since April, energy services firm Baker Hughes said in its closely followed report on Friday. 

The rig count has been rising over the past seven months and is up nearly 70% from a record low of 244 in August.

A Data Crammed Week For Oil And Gold

Both oil and gold prices could also react to a raft of US data due this week. This include durable goods orders and the personal income and spending reports, along with figures on new and existing home sales.

The housing data, together with the personal income and spending figures, which include the PCE deflator, the Fed’s preferred inflation measure, will probably show weakness, due to the impact of severe winter storms on economic activity in February. However, economists expect the slump to be short-lived.

The US is also to publish the latest revision of fourth quarter 2020 GDP, which was last reported at an annualized 4.1%.

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.

Commodities Week Ahead: Gold Aims To Crack $1,750; Oil To Stay In $60s
 

Related Articles

Phil Flynn
Energy Report: A Systemic Risk By Phil Flynn - Oct 15, 2021 4

The Biden administration is faced with a growing energy crisis and is expected to announce a plan that climate change is a systemic risk to the financial system. The real...

Commodities Week Ahead: Gold Aims To Crack $1,750; Oil To Stay In $60s

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Golden Berg
goldenberg Mar 22, 2021 11:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Australian and Japanese puppets are presently towing the US Fed party line making sure they don't rock the gold boat. Will see what the Chinese will do after last weeks US tirade of insults and ultimatums and trade war confirmation speeches.....American hostilities may have reached intolerable levels and China may be forced to use their bond ,T-bill and gold weapons.  The end result here is that more money will have to be printed to hold this whole mess together and plaster over the cracks because the stimulus cheque will distract the general population just for a few more weeks.
Barani Krishnan
Barani Krishnan Mar 22, 2021 11:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
We'll just have to see, goldenberg. It would be extreme of China, yes.
Sharmin Amin
Sharmin Amin Mar 22, 2021 10:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
this fake or real please tell me.........!
Jan Skilbrei
Jan Skilbrei Mar 22, 2021 10:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks, its very interesting. (wha g you hink about Platina)? Powell maybe unable keeping long term rates sufficiently depressed, its only good for the banks and the rich : )
Barani Krishnan
Barani Krishnan Mar 22, 2021 10:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What's fake or real, Sharmin? Kindly ask something with context so that everyone understands.
Barani Krishnan
Barani Krishnan Mar 22, 2021 10:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Jan Skilbrei  The Fed under Powell is a Titanic meant not to hit any iceberg. Super steady cruise, no rocking-the-boat nonsense :) Good for the super-rich, of course, as the original ship was meant to be. LOL
Hellary nick
Hellary nick Mar 22, 2021 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
transfer account sir..gold aims to crack$1.750 .oil to stay..
Barani Krishnan
Barani Krishnan Mar 22, 2021 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Transfer acct?
Saul Gilberg
SaulGilberg Mar 22, 2021 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Barani Krishnan  Many posters on https://investing.com don't make any sense. :D
Barani Krishnan
Barani Krishnan Mar 22, 2021 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Saul Gilberg  Yaa, I'm beginning to realize, Saul. Ha ha ... Thanks, mate!
Pat Berkowicz
Pat Berkowicz Mar 22, 2021 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Saul Gilberg  So ******true haha
Rml Trader
Rmltrader Mar 22, 2021 7:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold going down.....
Barani Krishnan
Barani Krishnan Mar 22, 2021 7:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It's been in the $10 range all through the Asian session, and now into Europe's.
Aamir Khhann
Aamir Khhann Mar 22, 2021 5:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Shouldnt gold be falling as US economy getting better?
Barani Krishnan
Barani Krishnan Mar 22, 2021 5:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yes and no. It's complicated because of the yields and dollar. If those two fall, gold could go up despite an improving economy.
Savin Surendran
Savin Surendran Mar 22, 2021 4:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sir, will this affect usd cad for down trend?
Barani Krishnan
Barani Krishnan Mar 22, 2021 4:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Dollar Index itself is in the red, but the loonie component of the US/CAD is weaker as markets try to position accordingly with the raft of data expected this week.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email