Commodities this week: the Fed is playing with gold, and this commodity is infected with corona
The statements of the US Federal Reserve and the expected date of moving interest rates, coinciding with the negative repercussions of the Corona pandemic, are still casting a shadow on the commodity, metals and currencies market. The recent US data reinforced the consolidation of gold, but the safe haven did not achieve the benefit that the bulls hoped for amid the uncertainty painted by Fed officials’ statements.
On the other hand, concerns about the decline in demand for crude oil and the return to closures were reinforced by the repercussions of the Corona virus and the most ferocious variables that appeared in the past weeks.
And gold increased during the sessions of this week by about $ 15 an ounce, up from levels of 1778 dollars at the end of trading in the second week of August. Gold’s rise was boosted by positive US unemployment data, as it recorded 348,000 jobless claims, down by 29 thousand jobs from the expected, which is 365,000 jobless claims this week.
Avtar Sandu, senior commodity manager at Philip Futures, said in a note that gold “remains unable to recover the key $1,800 level that will be a prerequisite for the yellow metal to regain some bullish brilliance.”
Kyle Rhoda, analyst at I. JMarkets: Gold lost some of the bullish momentum as market participants grow increasingly concerned about the risk of the Fed starting to reduce bond buying by the end of the year. The precious metal is considered a hedge against inflation and currency devaluation. A tightening of monetary policy by the US Federal Reserve would remedy both and thus reduce the attractiveness of gold.
The dollar index rose strongly during the week’s trading from 92.52 levels at the end of August 13 trading, to reach 93.5 levels during Thursday’s trading. The dollar rose to a nine-month high against the euro, Australian and New Zealand currencies on Thursday, after federal policy makers mostly agreed that a gradual stimulus plan would start this year and the rally came after the US Federal Reserve signaled that it might start reducing assets as soon as possible. Possibly coinciding with the continued recovery of the labor market situation.
The minutes of the Federal Reserve’s July meeting, which were released last Wednesday, said officials saw the possibility of starting an asset drawdown in 2021 provided the economic recovery remains within expectations.
“Our reading is that Fed officials continue to point to continued steps toward policy tightening, providing the US dollar with substantial and continuing support,” Westpac strategists said in a client note.
While oil suffered both from the increasing infections with the Corona virus, which hit expectations of a demand recovery in a fatality, or through US inventory data. The US West Texas Intermediate and the benchmark Brent crude fell during Thursday’s trading at their lowest levels since last May 20.
By Thursday’s session, August 19, oil recorded the sixth consecutive decline, in the longest wave of losses since February 2020. West Texas crude fell to the lowest levels of 63 dollars, and in contrast, the benchmark Brent crude fell to levels of 66 dollars. The US Energy Information Administration said Wednesday that gasoline stocks rose 696,000 barrels to 228.2 million barrels, while analysts expected a decline of 1.7 million barrels.
Experts at Danske Bank expected that the average price of Brent crude will average about $70 during the second half of this year, and about $72.5 a barrel next year. However, a recovery in consumption remains strongly likely over the next two years, although the spread of the virus in China and other parts of Asia may have a negative impact on demand in the short term.
The bank stressed that the OPEC + alliance to ease production restrictions mitigates the prospects of a rise in crude oil prices, despite expectations of an increase in global demand for crude oil for the next two years.
Despite the strong rises in the dollar index, the lira maintains its cohesion and is still trading at levels of 8.51 pounds against the US dollar, following the decision to fix interest rates. The Turkish lira appears more cohesive than before, as it succeeded during mid-week trading to touch its highest level against the US currency in nearly two weeks, after investors’ concerns about a possible easing of monetary policies subsided.
The Turkish Central Bank has kept the key interest rate stable at 19%, repeating its pledge to tighten policies in the face of high inflation. However, despite the limited gains, the lira is still depreciating by more than 12% since the beginning of the year, as the independence of the central bank remains a major concern for investors in recent years.
The lira suffers from continuous interventions that raise dealers’ concerns about Erdogan’s interventions in the country’s monetary policy. President Recep Tayyip Erdogan has publicly called for a rate cut, and economists said the wording of the statement following Thursday’s rate-setting meeting made no mention of an early cut.
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