Gold is trading at 1312.70 this morning giving up $3.90 in the Asian session after closing above the 1315 price on Friday as violence in Iraq move traders to the safety of gold. Gold is seen as a safe haven and also a hedge against inflation is enjoying a double whammy.
Economists and analysts are worried that the significant rise in petroleum costs will increase inflation around the globe. Inflation is defined as the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.
The increased price of oil will cause global price increases ranging from gasoline at the pump to manufacturing costs as well as increased shipping costs. This artificial leap will have long term effects on the economic situation weighing heavily as economies around the globe try to contain inflation while increasing growth putting central banks in difficult positions. Silver is closely following cues from gold trading at 20.835 while platinum is down $4.55 at 1453.85.
Crude oil climbed to 107.20 up by 36 cents this morning while Brent oil remains comfortably above the 115.00 price level adding 39 cents as violence in Iraq surged this weekend. In past week, Iraq remained at center stage though especially for the WTI; modestly softer inventory reading from the EIA weighed against big gains. EIA inventories fell by 600,000 barrels last week while additional negativity was appended with the fact that gasoline stocks increased by 800,000 barrels and distillate inventories increased by 400,000 barrels. However, looking at other internal aspects; gasoline production increased last week and touched 9.84 MBPD, its highest levels on record. Production for gasoline rising to record levels makes a case for anticipation of better demand from refiners and distributors in the coming weeks.
Brent oil is more responsive to the situation in Iraq and broke the $115 price late last week for the first time in 2014. Concerns over potential disruptions over oil exports from Iraq supported oil prices in the last week Scores of Iraqis were killed last week during a battle for the provincial capital of Baquba as an uprising by Sunni insurgents continued to threaten the disintegration of Iraq. The fighting also shut the country’s main oil refinery, starving parts of the country of fuel. However, Iraq’s oil refineries in the south, which process most of the country’s 3.3 million barrels per day of oil production, have been unaffected so far. The Baiji refinery near Tikrit, 200 km north of the Iraqi capital, remained under siege as troops loyal to the Shi’ite-led government held off insurgents from the Islamic State of Iraq and the Levant and its allies who stormed the perimeter, threatening national energy supplies.
Base metals continue to trade in the green with copper gaining 15 points this morning after the release of a better than expected HSBC manufacturing PMI showing expansion for the first time in seven months. Copper is trading at 3.133 after the data release. Copper prices jumped by 2.7 percent last week as the Federal Reserve indicated towards recovery in the US economy. Also, China’s central bank extended a reserve-requirement cut to some national lenders in an effort to shore up an economy set for the weakest growth since 1990. Further, weakness in the DX along with 2.5 percent decline in inventories supported gains.