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Precious Metals & Energy - Weekly Review and Calendar Ahead

CommoditiesMay 30, 2021 06:50AM ET
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© Reuters.

By Barani Krishnan 

Investing.com -- $3,750 gold?

The world isn’t even sure about returning to $2,000 gold in the near term. Yet, far loftier projections are already being made. 

It’s easy to dismiss any super bullish call on the yellow metal as outlandish and any acutely bearish forecast as absurd. 

But if the charting on either side of extreme territory turns out to be true for gold, then we can brace ourselves for some phenomenal swings that could come in the coming weeks and months.

As of Friday’s close, gold returned to its $1,900 perch after erratic moves in the 72 hours after it had recaptured the price point it lost 20 weeks earlier. 

The yellow metal also set another milestone - for May - as trading effectively closed for the month, ahead of Monday’s Memorial Day holiday: an 8% gain that was the best since July, or in 10 months.

Much of May’s action in gold was predicated by data on inflation - the other thing that's been supporting the comeback rally in the metal.

Inflation data over the past few months have rattled economists who fear that 2021 could see the biggest price spike in 35 years as the cost of almost everything, from houses to the lumber that goes into building them, soared.

Treasury Secretary Janet Yellen said on Thursday the spike in US inflation from a year ago is likely a temporary phenomenon caused by materials shortage in an economy rebounding from the COVID-19, and high annualized numbers could persist each month until the year end.

All things being equal, a higher inflationary environment is good for gold, which is seen as the best store of value in times of both financial and political trouble. 

Yet in recent months, gold’s rivals, the dollar and U.S. bond yields, have rallied instead on signs of ramping inflation, as investors bet the Fed will hike rates faster than anticipated - something the central bank has sworn against. Such speculation triggered selloffs in gold that sent it to a near 11-month bottom of under $1,674, before a retreat in yields and the dollar helped the yellow metal claw its way back to $1,900.

The Fed acknowledges the price pressures arising from bottlenecks in U.S. supply chains. The central bank has targeted an annual inflation of 2% over the past decade. But it has barely met that goal, with critics attributing the mismatch to the central bank’s dogged following of the PCE - a tame indicator stripped of food and energy costs, the most volatile components of inflation.

On the other hand, the Consumer Price Index, or CPI, which includes food and energy components, registered a 4.2% growth in April for its largest increase in almost 13 years amid soaring costs in an economy rapidly recovering from the coronavirus pandemic.

Inflation debate aside, multiple chart readings for gold are suggesting enough upside to vault the metal back to August record highs of $2,000 and above.

Among them are readings from Investing.com contributor Chris Vermeulen who posits a first major break above $2,067 that, if sustained at full throttle, could reach $3,750.

"The recent move above $1,900 in gold shows that precious metals are likely entering a new bullish price phase," Vermeulen wrote. "If our research is correct, gold may continue to rally higher – reaching a peak sometime near mid-October 2021."

Once gold clears $1,960-$1965, it should continue to advance to $2,067, then $2,305 fair quickly, says Vermeulen. 

"It is important to understand how price moves in advancing/declining waves/phases over time."

"At this stage of the precious metals rally, which I believe is very similar to the 2003 to 2006 gold rally, we may see gold continue to rally higher while the US/Global markets continue to trend moderately higher. "

Vermeulen says there was a shift in how capital was being deployed in anticipation of Fed and global central banks tightening - whenever that comes.

A similar process took place in 2005-2007 when the Fed raised interest rates in an attempt to deleverage markets in an orderly way. But stock indexes and precious metals continued to rally as traders and investors had already started hedging risks of an unknown market event, even as the central bank continued to raise rates.

Vermeulen said with the Fed widely seen raising rates anytime between next year and 2023, there’s intense speculation that the central bank will have to act earlier to avert inflation concerns. He adds: “The similarities between the 2004-2007 gold rally to what we are seeing in gold right now are uncanny.”

If it played out as scripted in that cycle of 15 years ago, gold could potentially rise to as much as $6,500, Vermeulen says, although he maintains that he’s “focused on a target level near $3750 right now”. 

The skeptics of the current gold rally have the metal going back to below $1,830.

Among them is Sunil Kumar Dixit of S.K. Dixit Charting in Kolkata, India.

Should gold regain its $1,900 footing, it will likely move up to $1,922, then $1,958, making what would be defined as “a triple top formation,” before plunging to between $1,848 and $1,828, Dixit said.

“To me, the odds of a pre-$1,960 plunge are a lot greater than a promising rally beyond $2,000,” he adds.

Dixit doesn’t regard himself as a gold bear at all. He actually likes the metal, but not to the extent that he’s blind to the pitfalls in its path. As such, he calls himself a “realist”.

Like him, many regard gold’s return to $1,900 levels as logical, overdue, and even remarkable, after the tortuous journey it’s been on earlier in the year. 

But after so many false starts during mini rallies in the $1,700 and $1,800 levels, skepticism is understandably running high among this crowd.

Gold Market and Price Roundup 

Gold futures for June delivery on New York’s Comex did a final trade of $1,903.60 before the weekend, after settling Friday’s trade up $6.80, or 0.4%, at $1902.5 an ounce.

The more active Comex gold futures contract for August also settled Friday’s trade up $6.80 at $1,905.30.

The spot price of gold, reflective of real-time trades in bullion, settled at $1,903.66, up $7.16, or 0.4%.

Traders and fund managers sometimes decide on the direction for gold by looking at the spot price - which reflects bullion for prompt delivery - instead of futures.

Oil Market Brief & Price Roundup

West Texas Intermediate crude for July delivery, the benchmark for U.S. oil did a final trade of $66.66 before the weekend, after settling Friday’s trade down 53 cents, or 0.8%, to settle at $66.32. For the week and month though, WTI rose 4.3%. 

Brent crude for July delivery, which acts as the global benchmark for oil, did a pre-weekend trade of $69.01 after settling Friday’s trade down 74 cents, or 1%, at $68.72. For the week, Brent was up 3.4% while for May, it rose 2.2%.

Oil prices dipped on Friday but gained on the week and month as average pump prices of gasoline hit seven-year highs of more than $3 per gallon going into Monday’s Memorial Day holiday.

Memorial Day unofficially marks the start of the peak U.S. summer driving season, and the American Automobile Association expects as many as 37 million travelers for the occasion this year, up 60% from last year’s pandemic-suppressed number of 23 million. Those driving over the three-day stretch usually fill their tanks more than once, typically resulting in a boon for gasoline consumption.  

Oil prices rose in anticipation of that demand, catching up with pump prices that have been edging higher for weeks.

“The average retail price for regular gasoline in the United States on May 24, the Monday before the Memorial Day weekend, was $3.02 per gallon, the highest gasoline price before Memorial Day since 2014,” the U.S. Energy Information Administration said in a post. 

Pump prices were also up $1.14, or 61%, from a year ago, the EIA said.

Bets over Memorial Day consumption helped oil prices offset lingering concerns about a possible surfeit in supplies from Iran entering the market in coming months if Tehran succeeds in clinching a new nuclear deal with world powers that would lift U.S. sanctions on its crude exports.

WTI and Brent were also supported by U.S. government data showing stronger-than-expected drawdowns in crude, gasoline and distillate stockpiles last week.

 Energy Markets Calendar Ahead

 Monday, May 31

Memorial Day Holiday

 Tuesday, June 1

Private Cushing stockpile estimates

 Wednesday, June 2

American Petroleum Institute weekly report on oil stockpiles.

 Thursday, June 3

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

EIA weekly report on natural gas storage

 Friday, June 4

Baker Hughes weekly survey on U.S. oil rigs

 

Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.

 

 

Precious Metals & Energy - Weekly Review and Calendar Ahead
 

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Comments (13)
Alan West
Alan West May 30, 2021 10:22PM ET
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Chris Vermuelen’s a gold perma-bull who’s always wrong.
Kunal Bhatia
Kunal Bhatia May 30, 2021 7:19PM ET
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Thank you for weekly review. It clears a bit of undecisiveness in taking trades of gold. Especially given the circumstances that we are in. But my question is:- is gold going to rally in bullish phase to 1,928 because if the inflation? Correct me if i’m wrong if i’m being positivily bullish on gold. T. I. A. 🙏🏼🧿
Barani Krishnan
Barani Krishnan May 30, 2021 7:19PM ET
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Kunal, thanks for the feedback and question. Yes, it appears that 1,920-1,930 is the bare minimum at which the upside is headed for. Sunil jee seems to agree too.
LA Little
LA Little May 30, 2021 5:07PM ET
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I would suggest that the Basel changes hitting Europe end of June are also a significant bullish factor
Barani Krishnan
Barani Krishnan May 30, 2021 5:07PM ET
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Yes, that's something to consider as well
Steffen vdm
Steffen vdm May 30, 2021 1:33PM ET
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Can we see something similar happening to gold as has happened to silver, going from 18 to 28 in a relatively short period? Or are silver and gold fundamentally different?
Barani Krishnan
Barani Krishnan May 30, 2021 1:33PM ET
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I believe silver has some fuel. in the tank this round, Steffen. 29 perhaps even 30 might no be misplaced.
Bubba Born
Bubba Born May 30, 2021 9:51AM ET
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Wait a minute. The author holds NO positions in any of the stocks he writes about in this article? LMAO. That's like listening to a barber tell you how to do brain surgery! What a plonk!
SunilKumar Dixit
SunilKumarDixit May 30, 2021 9:51AM ET
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Bubba Born. Whatta funny profile. Lol. You know what.... People like you deserve sympathy cuz common sense is seldom found commonly in common people. When God was giving wisdom to people, you were busy struggling to get lucky for some booze. Lolz. You know nothing about the author and not an iota about what moves Gold. We can understand your common sense or may be lack of it. So if you don't understand something, it's wise to shut the gap and gain some understanding of it than being an object of ridicule.
Barani Krishnan
Barani Krishnan May 30, 2021 9:51AM ET
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Bubba Born, do you even know the fundamental differences between an analyst and a trader? An analyst is someone who basically breaks down a particular subject; in my case here, the gold market. An analyst need not necessarily have a position in the market s/he is commenting or opining about, though there's nothing to stop her/him from doing so. Many do state in their disclaimers if they do have such positions. You might think that having skin in the game is a prerequisite for stating something with authority and conviction. The truth is a person without such exposure can actually comment without bias, and comes across as more credible than those trying to "bend" things their way. You really need to think/read more before you comment the next time.
Turkish Dream
Turkish Dream May 30, 2021 9:51AM ET
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The fact that author holds no position, actually has increased the credibility of this analysis increably. The truth is that no one will take the analysis seriously if authority holds position in it. In that case, the author tends to be biased in his own favor. Much thanks and appreciation to the author for this objective analysis.
Bubba Born
Bubba Born May 30, 2021 9:47AM ET
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I live in Thailand. No one here is buying gold or selling gold either. The gold merchants' shops are devoid of customers, and believe me, if there were truly a market in gold the Thais would be dealing in it. Right now all you see is fluff so be careful in how you play it now.
SunilKumar Dixit
SunilKumarDixit May 30, 2021 9:47AM ET
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Bubba just Born... Living in Thailand doesn't mean you represent Thailand, nor your baseless grumblings are official or authentic presentation of Thailand Gold markets. Google it and you will understand India is world's largest buyer and consumer of the yellow precious metal and Gold is known to move north as jewellery demand soars in wedding season. It's the biggest buyers who move Gold, not Thailand. Update your understanding of the fundamentals of markets. It will help.
Barani Krishnan
Barani Krishnan May 30, 2021 9:47AM ET
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Thanks, Sunil
Peemil Nicho
Peemil Nicho May 30, 2021 9:13AM ET
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I think critical point must lass 1920its hi at 2017 but I keep an eye on silver more because its not break new hi like gold ,2017 approx.50 usd for silver.
Catharine Varady
Catharine Varady May 30, 2021 8:48AM ET
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what bottleneck? no demand but the prices keep soaring. show me the orders if there is any. people just keep hoarding because usd losing its value. stupid fed, hallucinating from data and not knowing reality. pity them
Barani Krishnan
Barani Krishnan May 30, 2021 8:48AM ET
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Catharine, haven't heard of the microchip crisis?
SunilKumar Dixit
SunilKumarDixit May 30, 2021 8:45AM ET
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It will be very interesting to see how traders react to the 1958-1968 supply zone.
Barani Krishnan
Barani Krishnan May 30, 2021 8:45AM ET
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Indeed, Sunil.
Rick Baier
Rick Baier May 30, 2021 8:31AM ET
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Highest gas prices since 2014 (As mentioned in the above article) Thanks Biden for enslaving us too the the world oil market once again.
Barani Krishnan
Barani Krishnan May 30, 2021 8:31AM ET
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Leave the politics out and focus on the commodity.
Tyrone Jackson
Tyrone Jackson May 30, 2021 8:31AM ET
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Politics is what it is all about. Gas here in the states exploded right after the election. People of the US are not stupid. The day Biden won , gas prices went up, and have done so every month. This is what the Democratic Party is all about. Biden killed the Keystone pipeline within weeks of him becoming president. That is pure political. To not talk or report on Politics in a trading/ investment forum is like putting your head in the sand. I appreciate your reporting. Biden’s scheme of 6 TRILLION dollars will make and break millionaires the world over. Let’s talk about and report on what commodities will be needed for his scheme. Politics IS business. Exactly what my professor said first day of class. I will never forget that statement. Cheers
The Man
The Man May 30, 2021 8:31AM ET
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florencia feitosa
florencia feitosa May 30, 2021 8:31AM ET
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Tyrone Jackson  you don't know what you're talking about. shut your.... everyone knew what Biden was going to do, none of this is a surprise. Biden is the best president in the world.Trump does not return to the presidency. He goes straight to jail  there is no need to have so many millionaires in the world, a lot of accumulated wealth is of no use, it only generates inequalities
Tyrone Jackson
Tyrone Jackson May 30, 2021 8:31AM ET
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Biden will/ Democratic Party is the biggest divider of this country. Especially when it comes to the rich and working poor. What did eight years of Obama do for the poor inner cities? Last I checked- they were in very bad shape. 8 years of nothing for the very people that voted for him. FACT the black unemployment rate was the lowest OF ANY PRESIDENT the 4 years Trump was in office. Basically Obama screwed his own people, Just like Biden is about to do. Only 10x’s worse
Phil Kimmel
Phil Kimmel May 30, 2021 8:11AM ET
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Realists don’t trade gold!
Barani Krishnan
Barani Krishnan May 30, 2021 8:11AM ET
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Realists have eyes!
Pov Sakada
Pov Sakada May 30, 2021 8:08AM ET
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what this number means??
Xf Ff
Xf Ff May 30, 2021 7:45AM ET
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09092121382
 
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