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Precious Metals & Energy – Weekly Review and Calendar Ahead

(C) Reuters.

By Barani Krishnan – No one can say they weren’t warned. Yet, right after Tuesday’s mutilation, they’re back, their pointed horns looking ready to charge again. Gold bulls are here to stay, but will the bears allow them to run riot once again toward $2,000 pricing?

Gold’s “Black Tuesday” — every market has a momentous day to remind us why a rally shouldn’t overstay its welcome — wiped 5% or $93 off December, the most-active gold futures contract on New York’s Comex, after a greater intraday swing of $129. Since then, trading in the yellow metal has turned into a game of pure nerves or, at best, high-powered chess.

On Friday, December gold gave back 1% to neatly reverse the previous session’s gain, as longs and shorts squared off to determine the next direction for the yellow metal.

Even so, December gold got a high of $1,974.80 on Thursday — just about $25 away from a retest of the key psychological $2,000 level. This was despite Tuesday’s worst one-day carnage in gold since 2013.

In sports movie metaphor, that’s reminiscent of Rocky III, when the protagonist leaps back to his feet after a particularly brutal round, prompting the commentator to exclaim: “How can he come back from a beating like that?”

Gold can, as it has proven. But the moves hereon will no longer be linear in direction. This means it won’t just rise mindlessly as it did two months back in pursuit of the cheerleading “$2,000, $2,000, $2,000!” mantra. Neither is it likely to crash without quick buying bringing it back up. That said, buyer beware and brace yourself for daily rollercoasters.

“The curious case with gold is what, when and how much surprise it comes with,” said Sunil Kumar Dixit, an independent precious metals chartist. “For now, there’s no longer one-sided momentum. Volatility is on either side.”

Dixit said the “upper flanks” of gold showed a market that could go from $1990 to $2,007 and $2,015, while “lower linings” could bring a range from $1,920 to $1,900, $1,888 and $1,860.

“A range break on either side can add momentum of $40 to $100 more,” he added.

His best bullish case for gold is a ramp up to between $2,015 and $2,029.

Jeffrey Halley, Sydney-based analyst for New York’s online trading platform OANDA, had similar observations, with some notable exceptions.

“Both gold and silver … are still vulnerable to sharp dips at the first hint of trouble, be it negative headlines or substantial real money flows,” he said.

“The nature of the FOMO crowd is that the positioning is not sticky,” Halley said, referring to those who crammed a market for ‘Fear-Of-Missing-Out’ on its rally, only to abandon ship once the tide turned.

“(They) will head for the exit door at the first sign of trouble, especially after the emotional onslaught suffered on Tuesday.”

Adds Halley:

“Gold’s next move is unclear at these levels, with the risks evenly balanced either way in the near-term. One thing is absolute, though, the remarkable volatility will continue, and investors will need deep pockets and a strong stomach.”

Halley observes that the fast money that rolled out of gold was just as quick to roll back in to establish new long positions. That essentially told him one thing: gold was still in a predominantly bullish channel. This was particularly evident with the yellow metal’s 1% rebound on Thursday, despite a continued steepening of the U.S. 10-year Treasury yield curve. Spiking bond yields, along with a sudden turn-around in the U.S. Dollar Index, were what triggered the gold avalanche this Tuesday.

Halley thinks the yields spike is a fad that will fade soon on the impact of the Federal Reserve’s ultra-low U.S. interest rates and new deficit spending by Congress in fighting coronavirus

“The Federal Reserve remains an uber dove, and we can be 100% sure that they will nip any significant rises in long-term yields, or any yields for that matter, in the bud,” he said.

In oil’s case, crude prices eked out a second week of gains, thanks to the U.S. Energy Information Administration’s estimates of unexpectedly strong draws at home despite the International Energy Agency forecasting a weaker global outlook for fuels amid the Covid-19 outbreak.

And while a new wave of the pandemic across the world generates enough concern about the immediate demand for energy, oil bulls can expect more price support in the coming week from an old friend: OPEC+.

A panel of the Saudi-steered and Russia-assisted Organization of the Petroleum Exporting Countries and its allies will meet Wednesday to review the market amid efforts to roll back some two million barrels from production cuts of around 9.6 million barrels per day agreed to in May.

“OPEC+ will try to stay nimble until they have a better trajectory of the global crude demand recovery,” said Ed Moya, analyst at New York’s OANDA.

Precious Metals Weekly Review

New York-traded gold futures fell nearly 3.5% on the week, the first weekly decline in ten and the biggest setback since early May when safe-havens and risk assets plunged together during a liquidity crunch at the height of the coronavirus scare in the United States.

Comex’s December gold settled Friday’s trade down $16.80 at $1,953.60 per ounce after hitting an intraday low of $1,940.10. Just a week ago, it hit $2,089, the highest ever for any gold futures contract on Comex, before the avalanche that triggered.

Spot gold, which reflects metal available for immediate delivery, meanwhile, was down $9.15, or 1.8%, on the day at $1,944.49, after hitting a record high of $2,073.41 on Aug 7.

In silver’s case, the front-month September contract settled down $1.183, or 4.3%, at $26.535 per ounce, after hitting a seven-year high of $29.915 on Aug 7. For the week, September silver lost 5.3%.

Notwithstanding those declines, gold prices are still up some 27% on the average for the year, while silver shows a gain of 47% on the average.

Energy Weekly Review

At Friday’s settlement, New York-traded West Texas Intermediate, the benchmark for U.S. crude futures was at $42.23 per barrel.

For the week, WTI rose 72 cents, or 1.7%, adding to the previous week’s 2.4%.

London-traded Brent, the bellwether for global crude prices, closed the New York session at $44.95.

On a weekly basis, Brent gained 46 cents, or 1%.

The Energy Information Administration reported in its weekly data set on Wednesday that U.S. crude stocks drew down 4.5 million barrels for the week ended Aug 7, versus market expectations for a decline of 2.9 million.

Despite a new wave of the Covid-19 having impacted business performance in most U.S. states since July, the EIA has persistently estimated outsize crude draws over the past three weeks, to the tune of 22 million barrels that has led to skepticism from some traders at least.

The International Energy Agency, meanwhile, forecasts a worldwide demand drop of 8.1 million barrels per day for oil in 2020 — despite the global coronavirus situation being a lot less worse than in the United States.

Energy Calendar Ahead

Monday, Aug 17

Private estimates on Cushing oil inventories from Genscape.

Tuesday, Aug 18

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Aug 19

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

OPEC+ panel meeting

Thursday, Aug 20

EIA weekly report on natural gas storage

Friday, Aug 21

Baker Hughes weekly survey on U.S. oil rigs