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Precious Metals & Energy – Weekly Review and Calendar Ahead

(C) Reuters.

By Barani Krishnan – It was first real socking for gold bulls since the rally that began two months ago. But did it knock them out? Was it enough to scare them?

Hardly. If anything, Friday’s 2% selloff seems to have made the gold longs on Comex dig their heels in deeper to get to the next stage of the yellow metal’s parabolic run – a run that has carried it from intraday lows of around $1,670 in early June to highs of around $2,080 in the just-ended week.

And what would that next stage be? The most conservative of technical analysts who remain positive on gold think $2,100-$2,150 would be the next logical target of the bulls. The $2,100 level would be just $11 short of where Comex’s most-active gold futures’ contract, December, got to on Friday. December gold hit $2,089.20 before capitulating on the blowback dealt by a resurgent dollar acting on Friday’s U.S. nonfarm-payrolls data showing a monthly jobs growth for July, the third month in a row.

Prior to the slide, gold was displaying a measured Fibonacci move retracing its 2015 low of $1,046 from the 2011 record high of $1,920, Sunil Kumar Dixit, an independent analyst in precious metals, said.

Notwithstanding Friday’s selloff, if that Fibonacci retracement of 123.6% continued, it could set the metal’s next ascendancy to $2,127, “though buoyancy is likely to match $2,150 as a strong case”, Dixit said.

Even so, some think gold might have more to give back.

“This can open the door for a scenario of continuation in that pull back in the early portion of the week,” said James Staley, a technical strategist on gold who blogs at Daily FX.

Like many, Staley is convinced that gold isn’t finished rallying. But he has other concerns too.

“The bigger question is what happens around support, of which there are a few possible areas of note,” he said.

Of those, he listed two potential zones of relevance, the first being a zone that straddles the $2,000 psychological level and spans from a swing high at $1,987.95 up to the Tuesday swing low of $2,009.10.

“This zone remains especially interesting considering how price action just blasted through $2,000 without much of a pause and, to date, hasn’t checked-back for support around this price. The second deeper zone runs from the prior all-time-high of $1,920.94 up to a batch of swing lows from last week around $1,941.25.”

For now, few think the $2,000 support will be broken.

Also, something else happened Friday. After its settlement at under $2,030, December gold shot back up to $2,046 in the hours that followed. That established the rebound that will show in Monday’s preliminary electronic trade, ahead of Asia’s open. As with bull markets, any pullback often leads to bids from buyers sensing value at the lower level, and gold longs are still fixated on big paydays at above $2,100.

And while Friday’s tally itself was lower for gold, on a weekly basis the yellow metal was unstoppable — charting its nine straight weekly gain since the end of May.

Staley, who has said gold could correct further, also admits the market could surprise and shoot higher instead.

“The fact that the U.S. dollar spent the past five days ranging while gold continued to shred to all-time-highs seems to indicate that something else is at work,” he wrote in a Saturday blog.

“With a matter as overbought and built-in (as) gold, the question must be asked for how long that pullback might continue before bulls step in?”

Friday’s 0.7% rise on the greenback, the most in a day since March and which elevated the Dollar Index above the 93.6 level, was also unlikely to be sustained, said forex analysts.

“We think that USD shorts were covered ahead of this report,” TD Securities said in a forex market note for the day. “A better data print now leaves the USD bid as tenuous. We see attractive risk/reward to lean short” the dollar.

Silver, the other precious metal in parabolic mode, was also dealt a severe hand on Friday before coming back somewhat in post-settlement trade. September, the front-month silver contract on Comex, settled down 86 cents, or 3%, at $28.40. Earlier in the session, silver hit a seven-year high of $29.915, coming just short of the $30 targeted by many longs in the white-metal.

In the case of oil, crude prices settled almost 2% lower on Friday, falling for the second time in five days to a rebounding dollar and fears that global fuel demand will be crimped again by coronavirus-triggered lockdowns.

“In a normal world … I would think crude would be back in the 30s,” Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina, said in his daily note, referring to the plethora of bearish factors against oil.

“But in the world we live in, with a tumbling USD, $2,000+ gold and GOBS of additional fiscal stimulus coming to keep the politicians in office, I think none of it matters to most people who trade oil,” he said, emphasizing the market’s disconnect from objective pricing.

Precious Metals Weekly Review

The front-month October gold futures contract on New York’s Comex settled down $40.40, or nearly 2%, at $2,018. On Thursday, October gold hit $2,070, record high for a benchmark gold futures contract on Comex.

Comex’s December gold contract, which has attracted even more volume and open interest than October futures, settled down $41.40, or 2%, at $2,028. On Thursday, December gold surged to $2,089.20, an all-time high for any gold futures contract on Comex.

Spot gold, which reflects metal available for immediate delivery, last traded down $28.06, or 1.4%, at $2,035.12 on Friday, after hitting a record high of $2,075.14 in the previous session.

For the week though, October gold settled up 2.8% while spot gold fell 1.4%.

Notwithstanding Friday’s declines, gold prices were still up some 32% or more on the year. Silver showed a gain of more than 52%.

Energy Weekly Review

U.S. crude’s West Texas Intermediate, or WTI, futures settled down 73 cents, or 1.7%, at $41.27 per barrel.

London’s Brent, the global barometer for crude, closed the New York session down 69 cents, or 1.5%, at $43.30.

Still, WTI rose 2.4% for the week and Brent showed a weekly gain of 2.5%, indicating that crude futures probably had more to lose.

“Keeping the price levels would be unrealistic,” Bjornar Tonhaugen of Rystad Energy said of this week’s rise. “Traders rushed to the task … to correct the gains, remembering the invisible enemy, COVID-19.”

The rise in Covid-19 infections remains the dominant issue for the fuel demand outlook. Cases in the United States are still rising in a number of states, while India recently reported a record daily jump in infections. More than 700,000 people have died in the worldwide pandemic.

Nearly 4.9 million Americans have been infected by the COVID-19 so far, with a death toll reaching above 160,000, according to Johns Hopkins University. A model by the University of Washington has predicted 200,000 coronavirus deaths in the United States by Oct. 1, casting doubts on economic recovery.

Friday’s drop in oil prices came as the Labor Department said the United States added 1.8 million jobs in July, slowing from the 4.8-million jobs gain in June, as a new wave of coronavirus infections hampered labor market recovery.

The July jobs report, however, helped the dollar rebound from its free-fall mode and weigh on oil and other commodities. The Dollar Index, which pits the greenback against a basket of six currencies, settled at 93.39, up 0.7%, or 622 points — its most in a day since March.

Energy Calendar Ahead

Monday, Aug 10

Private estimates on Cushing oil inventories from Genscape.

Tuesday, Aug 11

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Aug 12

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, Aug 13

EIA weekly report on natural gas storage

Friday, Aug 14

Baker Hughes weekly survey on U.S. oil rigs