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Precious Metals & Energy - Weekly Review and Calendar Ahead

CommoditiesJun 20, 2021 07:33AM ET
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© Reuters.

By Barani Krishnan 

Investing.com - What the world knows and what it fears are two different things. The long-only crowd in gold probably knows this better than most others.

Gold bulls suffered their worst week since the 2020 Covid outbreak as prices fell almost 6% this week on the Federal Reserve’s expedited timetable for rate hikes and stimulus tapering.

The Fed’s maneuvers had been somewhat expected - yet generated fear beyond necessary and a mauling in gold that played to the advantage of bears in the yellow metal.

Going by some media reports, the U.S. central bank is embarking on an overly hawkish rate hike and stimulus tapering proposal that could lift off as soon as possible, after a year of super-easy pandemic-friendly monetary policy.

There are two things that make this assertion wrong.

One: The Fed is NOT raising rates tomorrow. Its so-called dot-plot plan suggests the earliest increase - albeit two hikes - will come before the end of 2023, which if my math is correct, is 2-½ years, or 30 months, away. 

Two: The central bank is still seeking data that will point to the appropriate time for it to start scaling back the $120 billion in asset purchases it has been carrying out for the past year to shield the credit markets and the economy from the worst impact of the Covid-19. 

In fact, Fed Chair Jerome Powell went to great pains during his news conference to emphasize that asset tapering - a term so overused in headlines now that its mere print or mention is enough to send shivers down traders’ spines - will NOT occur until the Fed sees adequate signals to justify such action. Powell also assured that the Fed will telegraph its taper intentions well in advance to avoid an inordinate market response.

“Our intention for this process is that it will be orderly, methodical and transparent,” Powell said.

I’m wondering which part of the Fed chief’s language that short sellers in gold didn’t get.

To me, what’s most amusing is the inanity of gold bears and Wall Street analysts (read: airheads) who find one ridiculous narrative after another each day to justify the continued selling and cheapening of a commodity that’s supposed to be the world’s number one hedge against inflation - in what is interestingly described now as one of history’s most supercharged moments for inflation.

If not for the pain of their loss, it might actually be comical from the perspective of gold longs to chase the market from $1,900s highs at the start of the year to mid-$1,800s and sub-$1,700s at one point, before seeing it bounce back to the $1,900s and collapsing again this week to $1,700s. 

Technical charts now indicate a return to mid-$1,800s. To those who’ve followed gold’s wacky ways over the past 10 months, I’ll say you know the drill: Rinse, repeat.

What made this week’s plunge in gold more absurd was that it came on the back of the first hike in US unemployment claims after seven straight weeks of declines that raised questions about the consistency of the labor market recovery from the pandemic. 

If gold is indeed a protection against financial and political troubles, then an inconsistent job market certainly ticks one of the boxes for investors to get into the yellow metal. Instead, what we witnessed was a near $87, or 5%, plunge on the day that brought to more than $100 altogether gold’s losses for the week.

Listening to the talking heads of CNBC and other financial show hosts and their guests right after the Fed meeting on Wednesday, one might have gone away with very a different idea than the central bank intended as both the rate hike and taper were made to appear imminent, as though they were just a quarter away from happening. 

Ostensibly, almost every guest on these shows has a position in the markets and they are there to talk their book; unlike independent analysts (me included) who do not trade for the sole reason of wanting to stay objective and unbiased with their market views. To be sure, I’m not a fan of gold, but a fan of reason and objectivity.   

To me, Powell’s words were clear and to deliberately act against the message of the Fed can be deemed as both irresponsible and stupid; if not for the fact that shorting gold itself in an environment of manufactured hype and fear can be very profitable for the bears and their clients. 

I’ll grant some concession though to St. Louis Fed President James Bullard’s observation on Friday that the central bank might have to consider raising rates by the end of next year itself in order to get ahead of inflation. Bullard becomes a voting member of the Fed’s Federal Open Market Committee in 2022 and his comments are worth noting.

Yet the timeline he suggests is at least 18 months away. It’s not tomorrow, for gold to get bashed like this.

 Gold Market and Price Roundup 

Front-month gold futures on New York’s Comex did a final trade of $1,764.30 per ounce before the weekend, after settling Friday’s session at $1,769 per ounce, down $5.80, or 0.3% on the day.  

For the week, Comex gold lost $110, or 5.9%, the biggest drop since the week ended March 6, 2020. The loss came after a seven-week low of $1,768 set for the benchmark gold futures contract.

The spot price of gold settled at $1,764.33, down $8.98 or 0.5% on the day. For the week, spot gold lost $113, or 6%, the biggest drop since the week ended March 6, 2020. The loss came after a seven-week low of $1,765.91 set for the benchmark gold futures contract.

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

Global oil markets closed up for a fourth straight week on Friday in a pre-summer rally based sometimes more on demand hype and inflation talk than consumption, with U.S. fuel usage remaining tepid while U.K.-based Covid infections hit four-month highs.

West Texas Intermediate crude, the benchmark for U.S. oil, did a pre-weekend trade at $71.40 per barrel after settling Friday’s session at $71.64, up 60 cents or 0.8%. 

For the week, WTI gained 1%, after matching an October 2018 high of $72.99 on Wednesday.

Brent crude, which acts as the global benchmark for oil, did a pre-weekend trade of $73.19, after settling Friday’s session at $73.51, up 45 cents or 0.6%. 

For the week, Brent gained 1.1%, after matching an April 2019 high of $74.96 on Wednesday.

Oil prices have been on a tear lately amid projections for one of the biggest summer demand periods for fuel in the United States as the country reopens fully from Covid-19 lockdowns. 

Despite the optimism over global oil demand, US gasoline demand has been questionable since the May 31 Memorial Day that marked the start of the peak summer driving period in the world’s largest oil consuming country. That suggests to some that more time was probably needed for U.S. fuel demand to accelerate.

U.S. pump prices soared to new seven-year highs above $3 per gallon this week despite stockpiles of gasoline surging by 10.5 million barrels over the past three weeks - nearly four times above forecast.

The gasoline numbers have jarred with the drawdown in crude stockpiles, which have fallen some 19 million barrels over the past four weeks versus forecasts for a 9-million-barrel drop, as refiners pushed out as much fuel as they could to the market in anticipation of take-up. 

The Energy Information Administration says U.S. gasoline demand was around nine million barrels a day last week, back to pre-pandemic levels. But weekly numbers for the fuel have continued to show more builds than consumption.

Prices of oil, along with those of other major commodities, have also been egged higher for months now by talk of surging U.S. inflation as supply chains in the country struggle to keep up with economic expansion after more than a year of pandemic suppression. The U.S. Consumer Price Index rose by 5% in the year to May, its biggest climb since 2008.

There are also concerns about the economy outside the United States and how that could mesh with global oil demand.

In the United Kingdom, some 11,007 new coronavirus infections were reported Thursday amid the spread of the highly transmissible Delta variant of the virus. The U.S. Centers for Disease Control and Prevention said the variant could become the dominant COVID strain in the United States as well despite the country’s massive vaccination drive against the virus.

 Energy Markets Calendar Ahead

 Monday, June 21

Private Cushing stockpile estimates

 Tuesday, June 22

American Petroleum Institute weekly report on oil stockpiles.

 Wednesday, June 23

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories 

 Thursday, June 24

EIA weekly report on natural gas storage

 Friday, June 25

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 (21)
DEVAa senapathi
ADEVA Jun 21, 2021 6:56AM ET
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Dear BK-ji, what willl happen if DXY broken 89.xx support? next target? where will GOLD move then? Any possibility DXY to break 95 mark?
Mart Bab
Rubberduck1973 Jun 20, 2021 6:54PM ET
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Wow. Great article. If we want Wallstreet best to go away, this nonsense has to stop as well. I was buying gold as an inflation hedge but got kicked out by this move. Painful. I get zero interest for keeping my money in a saving account, I then get less buying power because of inflation and so I buy gold, only to get run out by this nonsense. I understand why people join a Wallstreet bet movement.
Miriam Morkhul
Miriam Morkhul Jun 20, 2021 6:42PM ET
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Delightful reading of a sober article.
Hiep Nguyen Quoc
Hiep Nguyen Quoc Jun 20, 2021 2:15PM ET
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We have a chance to buy again. I hope that this hawkish fever will last until we get gold at 1680 again, or better 1600, 1450 ... Those are so good price to buy ^^
NUNO LOUREIRO
NUNO LOUREIRO Jun 20, 2021 1:49PM ET
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One of the best articles I ever read, what happened with gold this week was pure and senseless manipulation, saying FED was Hawkish just because signals a tax hike in... 2023 is ridiculous, and on the next day the numbers in unemployment were bigger and this is one of the main reasons the FED wants to see doing well before tapering
TL Chan
TL Chan Jun 20, 2021 12:32PM ET
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How board your macro view determine the interpretation of the economy play out.At the end of the day, the things behind the driving forces is still human thinking and behavior. Some angles definitely missed out, sorry!
Barani Krishnan
Barani Krishnan Jun 20, 2021 12:32PM ET
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Indeed, TLC. It's impossible to capture everything out there. Thanks for the feedback though!
Junior Moreno
Junior Moreno Jun 20, 2021 12:29PM ET
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In short: With the international market drowning in liquidity, banks are no longer able to do what they should with the money. As a result, in the US, banks are "returning" this liquidity to the Fed, through the uninterested deposit mechanism in the Fed overnight. The triggers of next crash: 1) meltdown of USA banks because of the enormous liquidity without real use destination; 2) we have the reheating of the China-US trade tensions. Biden visited Europe with the aim of joining forces against China; 3) the "real" US inflation already exceeds 70% (this number can be seen in US stock indexes, the destination of most of the liquidity injected into the system). CONCLUSION:  What we have today in the USA is just an illusory "appearance" of wealth, because dollar is dead and people have no more purchasing power, despite having some deposited money. WHY DID GOLD FALL? Because hedge funds are pulling money out of gold before the (imminent) crash occurs. They have just made a nice cash box.
Barani Krishnan
Barani Krishnan Jun 20, 2021 12:29PM ET
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Thanks for the great insight, JM. But your argument only strengthens mine that gold is the go-to asset at times like these, when the fertilizer is about to hit the fan. And also, you give too much credit to hedge funds. They aren't as clever as we think; many are just lucky to have hedged the right way at the right time!
angelo luca Iannaccone
angelo luca Iannaccone Jun 20, 2021 11:19AM ET
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Will the Basel III regulation push them to new lows? as the stock market of the yellow metal will be greatly deflated due to the strong regulation of derivatives and options after the approval of the regulation
Miriam Morkhul
Miriam Morkhul Jun 20, 2021 11:19AM ET
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It doesn't work like that. Gold itself has a constant value, only fiat amounts traded for it changes. The Wallstreet price for gold is made up, many products that helps "produce the gold price" are contracts that are leveraged 100:1, even 500:1. The behemoth force that is behind the spot price is the paper positions of banks long/short. Some have said these positions are greatly naked short. The BIS has stated that the derivates market in precious metals now pose significant financial risk in the system. Therefore they mandate that paperinstruments have 85% physical backing. US Mint communicated silver supply shortage and the Perth Mint is allegedly running a fractional reserve system.
CHADWICK RICHINGTON
CHADWICK RICHINGTON Jun 20, 2021 11:03AM ET
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Barani great article! Don’t lie though we know you have GDXJ calls in your robinhood account ;) haha
Barani Krishnan
Barani Krishnan Jun 20, 2021 11:03AM ET
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Ha ha ... Nice try, Chadwick! But really, upon the Lord, I have zero market exposure of any kind. Helps me when I pulled my head on the pillow at night and when I write these pieces (without bias!). Thanks for the feedback.
CHADWICK RICHINGTON
CHADWICK RICHINGTON Jun 20, 2021 11:02AM ET
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Gold is a massive buying opportunity right now
Franklyn Enwemadu
Franklyn Enwemadu Jun 20, 2021 11:02AM ET
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nope always look at your monthly chart and understudy the long term trend the dollar is being oversold and the market is cashing in to it and market players want dollar to rise remember the fed is now hawkish
Optimum integrated Services
Optimum integrated Services Jun 20, 2021 10:16AM ET
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you are on point
Barani Krishnan
Barani Krishnan Jun 20, 2021 10:16AM ET
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Thanks much for the feedback.
Phil Kimmel
Phil Kimmel Jun 20, 2021 10:14AM ET
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Only dummies are bullish on gold. Over the last 30 years, one of the worst investmenrs you could have made.
Barani Krishnan
Barani Krishnan Jun 20, 2021 10:14AM ET
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You are a broken record.
Franklyn Enwemadu
Franklyn Enwemadu Jun 20, 2021 10:14AM ET
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you are on point traders of now don't try to understand the long term trend of gold and also try to study their monthly chart
Glock Blackni
Glock Blackni Jun 20, 2021 9:18AM ET
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On point.
Barani Krishnan
Barani Krishnan Jun 20, 2021 9:18AM ET
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Thanks much for the feedback
Glock Blackni
Glock Blackni Jun 20, 2021 9:18AM ET
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👍🏻
Umer Iqbal
Umer Iqbal Jun 20, 2021 9:12AM ET
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nic
Umer Iqbal
Umer Iqbal Jun 20, 2021 9:11AM ET
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nic
florencia feitosa
florencia feitosa Jun 20, 2021 8:57AM ET
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the entire gold rise that took two months was destroyed in one week
Junior Moreno
Junior Moreno Jun 20, 2021 8:57AM ET
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Gold fell for an obvious and simple reason: the big hedge funds are pulling money out of the yellow metal before the (imminent) crash occurs. That's all: they made a nice cash box to buy the next (imminent) SP500 crash, more than 30% crash during 23 days of meltdown, with high speed driven by high levels of leverage. Fasten your seat belts now (sell your gold and make cash), because we are going to the total destruction very soon (days)...
Barani Krishnan
Barani Krishnan Jun 20, 2021 8:57AM ET
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Junior Moreno  See my reply above on hedge funds. Thanks.
florencia feitosa
florencia feitosa Jun 20, 2021 8:56AM ET
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Rates will only increase in 2 years, but why did gold decide to fall earlier?
Barani Krishnan
Barani Krishnan Jun 20, 2021 8:56AM ET
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Exactly my point, Florencia.
John Walker
John Walker Jun 20, 2021 8:42AM ET
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Oil is a commodity, gold is a currency. Dollar up, commodities up, currency down. It's not that hard.
Umang Bhatt
Umang Bhatt Jun 20, 2021 8:17AM ET
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looks like you have a lot of long positions here
Barani Krishnan
Barani Krishnan Jun 20, 2021 8:17AM ET
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Not me. I don't trade. See my disclaimer below the story.
Lonnie Shelton
Lonnie Shelton Jun 20, 2021 8:06AM ET
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very good article. well written and factual.
Barani Krishnan
Barani Krishnan Jun 20, 2021 8:06AM ET
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Thanks much for the feedback, Lonnie.
 
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