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Precious Metals & Energy - Weekly Review and Calendar Ahead

CommoditiesJan 24, 2021 07:44AM ET
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By Barani Krishnan

Investing.com - The first week of the Biden administration brought mixed fortunes for commodities - mixed is about the best description for it, as gold and other precious metals gained for the first time since the Christmas week, while oil and most other energy markets dipped.

While directionally, the different asset classes seemed to go the right away - i.e. the White House’s aggressive push for more stimulus lifting gold and new Covid lockdowns in China weighing on oil - the percentages on the weekly moves were modest, even puny, considering what was at stake.

For starters, consider President Joe Biden’s spending bill for the pandemic that starts at $1.9 trillion.

This isn’t something to be treated with nonchalance, given that the U.S. federal budget deficit itself is already at $4.5 trillion or so, after adding the Trump administration’s $3 trillion plus COVID-19 stimulus for last year. The national debt is, meanwhile, approaching $28 trillion, and total debt-to-GDP is at a stunning 146%. 

And Biden has repeatedly said the $1.9 trillion is just a beginning. By the time, his administration is done fighting the pandemic, the federal deficit could be double-digits. One can only imagine the dollar debasement that will cause. 

That’s not all. Monetary expansion is coming too. While the United States appears to be in the relatively early stages of a monetary expansion cycle, the so-called M2 monetary base could still increase substantially and set the country up for a return to the 2008/2009 financial crisis days. 

With the dilution of the fiat monetary system, higher inflation is most certainly on the way. Gold prices have a very strong correlation on a long-term basis with monetary base expansion. 

Yet, bears were allowed to attack gold prices in the final week of December - and, again, in the first week of this year - with such ferocity that belied any rational thinking, considering that the yellow metal has been a time-honored hedge against any dollar weakness or inflation. 

The blame for gold’s tumble in that period was laid squarely on surging U.S. bond yields, namely that of the benchmark 10-year Treasury note. The argument was that the bond market feared near-zero interest rates will suddenly spike if the trillions of dollars of stimulus put to work end up boosting the economy faster than thought. The notion persists despite vehement counter-arguments from the Federal Reserve. 

What really took the cake though was institutions diverting money from gold into bitcoin, which had suddenly taken on a Tesla-like mania in recent weeks amid the FOMO - Fear Of Missing Out - rally. Some of that lunacy was doused in the past two weeks as bitcoin lost 20% from record highs above $40,000. The craze over cryptos will probably return since foolery and markets can never be separated forever.

While many may be missing it, the hedge that gold provides in times of trouble, both economic and political, is real. True, gold is non-yielding, unlike bonds. But it’s a solid insurance against currency debasement.

Gold gained 1.4% in the just-ended week. That was less half than of the 3.5% it lost in the prior two weeks. At Friday’s close of just above $1,856 an ounce, it remains more than $100 below January’s peak and more than $230 under August record highs.

Bond yields aside, the other thing weighing on gold is concern that Biden may have trouble getting some of his stimulus packages through the Senate, given the razor-thin majority of one held by Democrats aligned with him. 

The compromise then would be a string of mid-sized relief bills, rather than chunky trillion-dollar instalments. That could mean a slower climb for gold prices rather than a runaway rally many had thought earlier.

On the oil patch, crude prices fell the most in five days after the first U.S. crude build since the week ended Dec. 7 reported by the U.S. government.  It was a build that corresponded with the lack of retail commercial demand for fuel amid the coronavirus pandemic.

Despite the drop on Friday, crude prices barely fell on the week, resisting any sharp move to the downside on the notion that OPEC production cuts in February and March led by the Saudis will shore up the market.

What traders ignore is China’s ramp up in lockdowns after the highest number of daily Covid-19 cases there in more than 10 months.  The other thing that might soon bite the market in the rear are production ramp-ups by Iran, now that Trump-era sanctions are not expected to be enforced rigidly anymore.

Gold Price & Market Roundup 

Gold for February delivery on New York’s Comex did a final trade of $1,855.30 on Friday, after officially settling the session at $1,856.20 an ounce — up $9.70, or 0.5% on the day.

For the week, the benchmark gold futures contract was up $26.30, or 1.4%. In the prior two weeks, February gold lost nearly 3.5% combined. 

“I think gold is building up energy and likely to make a solid move in the near to intermediate future,” said Eric Scoles, market strategist at Blueline Futures in Chicago. Which direction, he’s unsure.

And this is Scoles’ problem, as well as that of many analysts.

Scoles points to gold’s hourly chart that showed a mostly range-bound move between $1,826 and $1,827 since Jan 8. This suggests a market in consolidation before a bigger next move, he said.

“In my opinion, the daily chart and the monthly chart both look a bit bearish,” he adds. “There is however a notable bullish signal on the weekly chart showing a positive reversal. But I'm somewhat bearish until there is a more significant shift in fundamentals.”

Ed Moya, senior analyst at OANDA in New York, concurs with that view.

“Bets against the greenback remain excessive and the dollar rebound might need to continue before dollar weakness can resume,” says Moya. “Gold appears set to consolidate, but the longer-term bullish outlook should remain intact on ballooning deficits and as inflationary pressures heat up.”

Oil Price & Market Roundup

New York-traded West Texas Intermediate, the key indicator for U.S. crude, did a final trade of $51.99 per barrel, after settling Friday’s official session down 86 cents, or 1.6.%, at $52.27 per barrel. It was WTI’s biggest one-day slide since Dec. 18.

But for the week, WTI lost just 0.2%.

London-traded Brent, the global benchmark for crude, did a final trade of $55.08 per barrel. It settled Friday’s official trade at $55.41, down 69 cents, or 1.2%, on the day. 

For the week, however, Brent gained 31 cents, or 0.6%.

On the crude inventory front, the Energy Information Administration reported a build of 4.35 million barrels for the week ended Jan. 15. It was the first stockpile increase for U.S. crude since the week to Dec. 7 and bucked market expectations for a draw of 1.17 million barrels.

Contributing to the crude build here is a huge slump in U.S. crude exports, which fell by nearly 750,000 bpd, or barrels per day. But to offset some of the slack in exports, the United States also took in less imports last week, to the measure of 194,000 bpd, the EIA data showed.

On the fuel products front, gasoline registered a draw of just over a quarter million barrels versus an expected build of 2.8 million. That came after a total build of 9 million barrels over the previous two weeks. 

For diesel-led distillates, the build was less than half a million barrels versus expectations of a rise of 1.2 million. Distillate inventories have risen 14.5 million barrels over four weeks now.

Besides the U.S., the outlook for oil was getting worrying on the international front as well.

Since last week, China has started restricting the movement of some 28 million people after suffering its first coronavirus death on the mainland since May. 

In Iran, officials reported on Friday that they were ramping up production with the end of tight policing done on the regime by the previous Trump administration’s sanctions.

Iran once sent out more than 3 million barrels per day around the world, and although its crude shipments were at a fraction of that now, it could regain its export momentum for oil very quickly. It is something to be watched carefully, given the impact Tehran could have on the stage-managed output of the global oil alliance OPEC+, and the broader impact on oil prices.

Energy Calendar Ahead

Monday, Jan 25

Private Cushing stockpile estimates

Tuesday, Jan 26

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Jan 27

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

Thursday, Jan 28

EIA weekly report on natural gas storage

Friday, Jan 29

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. He does not own or hold a position in the commodities or securities he writes about.

 

Precious Metals & Energy - Weekly Review and Calendar Ahead
 

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Comments (9)
Dafril Afin
Dafril Afin Jan 24, 2021 11:10PM ET
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kemana  arah mu emas
Barani Krishnan
Barani Krishnan Jan 24, 2021 11:10PM ET
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Ke syurga :)
Roro Zoro
Roro Zoro Jan 24, 2021 11:10PM ET
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Francesco Lucchesi
Francesco Lucchesi Jan 24, 2021 3:13PM ET
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still I find surreal gold at 1855 with the utter mess we are in. on a brink of perhaps a Russian Revolution and gold is stuck
Brian Williams
Brian Williams Jan 24, 2021 3:13PM ET
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Thats cause all the money is being flooded into bitcoinThe reserve currency has changed hands.
Francesco Lucchesi
Francesco Lucchesi Jan 24, 2021 3:13PM ET
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Brian Williams lol what a joke
Barani Krishnan
Barani Krishnan Jan 24, 2021 3:13PM ET
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Francesco, there are simply no words to aptly capture the lunacy that's going on. Institutions chasing returns from bitcoin like daytime traders. When you hear that, you know the investing world as you know it is coming to an end. There cannot be enough facepalms to fit in here.
Taylon Erasmus
Taylon Erasmus Jan 24, 2021 11:38AM ET
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what's your opinion on gold
BOB MM
BOB MM Jan 24, 2021 11:13AM ET
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If you can afford Platts (or at least bloomberg terminal), at least you can post some more valuable data here, not just the cheapest public data. Everyone can get these data easily, so they're helpless at all. Finally, "Virus second wave" is replaced by "China new lockdown". Now we can see new trash articles about bearish oil in the next couple of months. LOL
Barani Krishnan
Barani Krishnan Jan 24, 2021 11:13AM ET
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BOB MM, Iran is the watchword. But for someone completely divorced from oil's fundamentals, I don't expect you to understand all these.
SunilKumar Dixit
SunilKumarDixit Jan 24, 2021 11:13AM ET
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BOB MM when you call the analysis a trash and the data cheap you seem to be lacking the very basic understanding of the fundamentals of Oil. Go get some study and enhance your knowledge so you can understand the variables. And yes we have deep sympathies for your pains. LOL🤣
ELLIOT MILLER
ELLIOT MILLER Jan 24, 2021 10:00AM ET
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Energy also includes natural gas, completely omitted in he discussion of "energy".
Barani Krishnan
Barani Krishnan Jan 24, 2021 10:00AM ET
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Elliott, we write a weekly update on natural gas each Wednesday, or on the eve of the EIA storage data release. With this weekly column, we decided to stay on the big things in PM and Energy, so we have kept the focus on oil and gold. Hope that explains. Thanks.
Matias Riesco Vicuña
Matias Riesco Vicuña Jan 24, 2021 9:21AM ET
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Iran need the US sanctions to be lifted to rump up their output in 2 month period a d that is not going to happen any soon... And there is a huge relief package of 1.9T that will not only increase demand, it will undermine the US dollar aswell as the monerary expansion... According to that in my humble opinion WTI is still bullish
Show previous replies (2)
Barani Krishnan
Barani Krishnan Jan 24, 2021 9:21AM ET
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BOB MM  Everyone, please excuse this royally-asinine character called Bob MM hasn't the foggiest idea about what determines oil price movement. He knows only one thing -- to be long oil. I don't expect him to ever understand market nuances and how one variable offsets another. Until the November turnaround aided by vaccines, he got burned on his long positions. Since the market's recovery, he has gotten bolder in throwing in.sults and started a silly campaign in trying to tr.oll me despite not having an iota of intelligent thing to say in rebuttal. A crea.ture to be sympathized with, no doubt.
Barani Krishnan
Barani Krishnan Jan 24, 2021 9:21AM ET
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BOB MM  And by the way, BOB MM, Investingcom has access to all real-time news and data feeds, including Bloomberg, and by the default, I have them too. I use what is relevant. And by the way, why are you here reading the so-called "cheapest public data" that we put out if you have such access. The answer is obvious: You're a cheapskate with a loud m.outh.
SunilKumar Dixit
SunilKumarDixit Jan 24, 2021 9:21AM ET
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B**B MM this is what we should call you when you call this proven author a fool. Even a common man with common sense can say this is not a lasting bull run for oil as there is no big demand. But common sense is not common in common people. Include some almonds in your diet which helps in improving the empty head. Again deep sympathies for your pains. LOL 🤣
Mojtaba Yarmohammadi
Mojtaba Yarmohammadi Jan 24, 2021 9:21AM ET
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i am from iran . in iran people die , with sanction or without sanction . iranian people going poor with sanction or whiteout sanction because of their dictator leaders . 😥
Barani Krishnan
Barani Krishnan Jan 24, 2021 9:21AM ET
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Mojtaba Yarmohammadi  It's time to maximize Iranian oil production. Whether your current leaders get reelected or not, it is the right thing to do, for the sake of the Iranian people.
Peter BullMarket
Peter BullMarket Jan 24, 2021 8:20AM ET
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Great article as always! I just don't think the excuse that mainstream uses to say that gold has dropped because the 10 year treasure notes. I can not imagine people selling physical gold because a 10 year treasure note is paying 1%.... In my opinion gold dropped because of the price manipulation in the sector and nothing else
Suad Farah
Suad Farah Jan 24, 2021 8:20AM ET
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Agreed 100%
Barani Krishnan
Barani Krishnan Jan 24, 2021 8:20AM ET
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Peter BullMarket, thanks as always for the feedback. You're one of the few who seems to understand what's going on, and have called it out for what it is. In the absence of clear and irrefutable evidence, I'm trying to avoid using the "m" word. But I'm really banging head against the wall to get the message out, and appreciate that more people are beginning to get it. Let's see what happens to gold in the coming week. Bests.
Alan West
Alan West Jan 24, 2021 8:20AM ET
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Barani Krishnan A chart of the 10yr note vs gold shows they’re opposites, and have been for years, so rates up, gold down.
Barani Krishnan
Barani Krishnan Jan 24, 2021 8:20AM ET
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It doesn't have to be a one-trick pony, Alan. I know your anti-bias toward gold. There is such a thing called common sense as well, and you know that is out of the window when institutions start chasing a thing called bitcoin.
Ermina Krisnawati
Ermina Krisnawati Jan 24, 2021 8:05AM ET
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any thought about nickel?
Barani Krishnan
Barani Krishnan Jan 24, 2021 8:05AM ET
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Ermina, will write something on nickel in the coming week. Thanks.
Captain jeff irons
Captain jeff irons Jan 24, 2021 8:05AM ET
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Please don’t call it a “yellow” metal. The color of gold is not “yellow”. The color of gold is gold. The depth of the metal’s cultural significance is reflected in the fact that the word “gold” is used to describe a color in our language. Guess what that color it’s based on comes from?
Captain jeff irons
Captain jeff irons Jan 24, 2021 8:05AM ET
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Would you call silver a “gray” metal? The color of silver is silver.
Hassan al siouf
Hassan al siouf Jan 24, 2021 8:05AM ET
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black and red?
Axel Beinlich
Axel Beinlich Jan 24, 2021 8:05AM ET
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Captain jeff irons What color would you say steel is ? Silver?
Barani Krishnan
Barani Krishnan Jan 24, 2021 8:05AM ET
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Captain Jeff Irons, you have an interesting name there yourself, sir. I believe the colors were assigned to the different metals (for instance, copper red and platinum white) to create a variation in description. I don't believe there is any ulterior motive here. I certainly didn't pick those names. I'd urge you to focus on instead the substance of the story, which I spent a good part of my Saturday writing. Thank you.
SunilKumar Dixit
SunilKumarDixit Jan 24, 2021 8:05AM ET
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Hi Captain Jeff Irons Nice reading your observations. However let's focus on the core of the analysis and outlook that the learned author has written about Gold and Oil and we ought to appreciate the good work. Cheers 👍
 
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