Market sentiment was lifted as US’ consumer sentiment unexpectedly jumped to a 6-month high. This readily offset disappointment from home sales and Richmond Fed index. ECB President Mario Draghi stated that he was seeing evidence of monetary policy becoming more effective but that the ECB stood ready to take additional easing measures if needed.
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Headline US Consumer Confidence Lifted Sentiment
Investors reacted positively to Fed Chairman Janet Yellen’s testimony and the House’s approval of a bill to raise the US debt ceiling. Wall Street gained with the DJIA and S&P 500 indices rising +1.22% and +1.11% respectively. In the commodity sector, gold jumped despite Yellen’s comments that Fed’s tapering would remain in progress.
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Sentiment Lifted by Yellen’s Comments and Vote on Debt Ceiling
Gold price remained firm last week, recording a gain of +1.87% although China’s market was closed for Lunar New Year holidays. Price in term of Indian Rupee gained only +1.33%, suggested buying interest (through legal channels) remained to be tamed by trade restrictions. Without buoyant physical buying, the yellow metal was supported investment demands. Speculative positioning in Comex gold has risen for 6 consecutive weeks.
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Weekly Fundamentals – Gold Remains Firm despite Lackluster Physical Demand
The ICE US Dollar Index headed higher this week and pushed nearer the 81 mark after the Federal Reserve finally started it’s long awaited tapering strategy to wind down US bond buying next year amid signs that American economic growth is picking up.
Latest ICE US Dollar Rate
The ICE Dollar Index, which tracks the US dollar against five major world currencies including the euro and UK sterling edged up to 80.980 earlier in trading on Friday and closed the session at 80.745.
Fed Tapering Gets Underway
The Federal Open Market Committee announced on Thursday that it would slow monetary stimulus to $75 billion a month from $85 billion which immediately boosted the dollar’s value on currency markets, however the broader picture remains strategically unchanged.
“The dollar has taken a lot of strengthening from the tapering news, and I do expect it to continue,” Fabian Eliasson, head of US currency sales in New York at Mizuho Financial Group Inc., said in a phone interview.
According to brokers, the market had already factored in the much awaited announcement about stimulus roll back. The US central bank will still pump money into the US economy, only a little more slowly than previously.
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US Dollar Index heads nearer 81 after Fed finally starts it’s tapering strategy
Morgan Stanley explained why it believes Brent crude prices would remain “range- bound over the next 5 years”. Although global supply growth would be helped by “the resolution of supply outages and material growth out of North America and Brazil” as well as “an improved USD outlook”, oil prices would hardly average below US $95-100/bbl in 2015.
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iBank Focus – Crude Oil to Remain Range-Bound
The price of Brent crude oil is trading near $111 a barrel mid-Tuesday and remains at three month highs, spurred on by uncertain nuclear negotiations with Iran that have helped support European oil prices, as events in the Middle East continue to cause oil prices to fluctuate.
Latest Brent Oil Price
In London, Brent crude oil futures for January 2014 delivery was trading at $111.32 a barrel, 12:44 GMT on the ICE Futures Exchange. The contract was at $111.67 a barrel earlier in today’s session.
Iran Nuclear Negotiations
Foreign ministers from world powers struggled last Saturday to nail down a landmark nuclear deal with Iran, with US Secretary of State John Kerry announcing his imminent departure and Iran’s chief negotiator downbeat.
The head of the UN’s nuclear agency, Yukiya Amano, has warned it will “take some time” before work can begin on verifying whether Iran is complying with a deal on its nuclear programme.
Iran agreed late November to curb some nuclear activities for six months in return for sanctions relief. The deal requires increased UN inspections of Iran’s nuclear sites including the Arak heavy water plant.
Iran insists its current nuclear programme is peaceful, but has failed to allay the international community’s suspicions it is aimed at acquiring atomic weapons.
The world’s largest economies want Iran to stop enriching uranium to a fissile purity of 20 percent, close to weapons grade, but while allowing it to continue enrichment to lower levels. That would be a step back from successive UN Security Council resolutions that have called for Iran to halt all uranium enrichment.
Iran’s Oil Market
Tough international sanctions on Iran’s vast oil and gas wealth aren’t going to disappear overnight, but last week’s interim nuclear accord opens the door for Iran’s return to oil influence.
Iranian officials are already putting out feelers to western oil majors and leaders of other OPEC nations, hoping to stake out room on the international market for the Islamic Republic’s oil. It could be a welcome addition, as supply disruptions in Libya, Nigeria, and elsewhere continue to rattle investors. Still, production in the US and Saudi Arabia is booming, and neither country is likely to slow down anytime soon.
Brent $100 Minimum Price
Iranian oil exports have plummeted in the last two years, from more than 2 million barrels per day in early 2012 to an average of 1.1 million barrels per day in the first nine months of 2013, according to the IEA (International Energy Agency).
“The bottom line is the Iranians don’t want to rock the boat and put $100 oil under threat, so they need the cooperation of the Saudis.” said energy consultant Mehdi Varzi, formerly of state National Iranian Oil Company. It’s why Iranian Foreign Minister Javad Zarif, on a tour of Gulf Arab states this weekend, expressed interest in working more closely with Saudi Arabia, one of America’s strongest allies in the Middle East.
Oil prices fell last week on news of constructive talks with Iran, but after a couple of trading sessions the news seems to have been shrugged off. That’s not to say that oil prices won’t be weak in coming months.
Meanwhile, the Iranian administration has set oil price to $100 per barrel in the next year’s national budget bill, IRNA quoted Iranian MP Ja’far Qaderi as saying last Sunday.
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Brent oil price remains at a three month high near $111 a barrel
Crude oil prices remained weak in European session amid speculations that the agreement between P5+1 and Iran would eventually unlock oil supply from the Middle East country. Gold price has remained weak but impacts from the Iranian deal seemed to be limited. We have little information about Iran’s gold reserves.
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Oil Remained Pressured on Iran Deal; ECB Rate Cut Still Possible
There were two issues happening during the weekend that investors should pay attention to. First, the chance of military action against Syria has further diminished as the US and Russia reached an agreement to handle the situation. Second, Larry Summer, as popular candidate of the next Fed Chairman, announced that he would accept the offer even if he’s appointed. The focus has returned to 2 others candidates, Janet Yellen and Donald Kohn. For the coming week, the focus would be on the FOMC meeting.
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Summers Withdrew from Fed Chairman Candidacy. FOMC Meeting in Focus
The US Dollar Index hit a 3 year high in trading on Wednesday, clocking up 84.940 in early hours as investors once again run for cover to the greenback however crude oil prices are still rising in tandem as Egyptian tensions continue to fuel supply concerns.
Latest Dollar Index Rate
The ICE US Dollar Index, which tracks the dollar against a basket of major world currencies was trading at 84.700, 06:47 GMT this morning on the ICE Futures Exchange.
More Dollar Strength To Come?
The most recent CFTC data showed long dollar positioning building into the end of the second quarter, but still below the peak seen in May, suggesting further upside for the greenback. The value of net long positions in the dollar jumped to $22.37 billion in the week ended July 2 from $13.28 billion the previous week.
“This is momentum-driven trade and we are looking for more dollar strength,” said Mankash Jain, head of FX and Investment Management at Solo Capital.
Oil Prices Still Rising
Brent crude oil futures hit $108 this morning and US WTI Light crude passed through $104 a barrel as the latest oil inventory data out of the US once again showed big declines. Meanwhile, Egypt is still in the spotlight as traders remain concerned about crude oil supply which passes through the Suze Canal.
Late on Tuesday the US API (American Petroleum Institute) reported that American crude oil supplies fell 9 million barrels for the week ended July 5. A Platts survey of analysts had projected a decline of 3.8 million barrels.
“This is a big shock. While most were looking at another drawdown in supply, no one expected this drop.” said Price Futures Group senior market analyst Phil Flynn.
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US Dollar Index hits a 3 year high but oil prices are still rising
Analysts at some of the world’s major banks are busy cutting their short term gold price forecasts following the recent steep plunge lower for the precious metal which saw a 10 percent one day crash which hit the market mid April.
Latest Gold Price
Gold rose by 1.1 percent to $1,448.28 an ounce in trading this morning heading for its biggest weekly gain since October 2011, after a surge in physical demand in Asia helped pluck the metal from a 2 year trough.
Gold prices plunged 9.1 percent on April 15, the most since February 1983 falling to $1,361 an ounce mid April, their lowest level in two years.
Banks Gloomier on Gold
Yesterday, Swiss bank UBS cut the bullion dealer’s one month gold price forecast by $300 per ounce to $1425 – just below current levels. UBS’s three month gold price forecast is now at $1500 per ounce, down from $1850 previously.
Last Friday Canada’s RBC bank cut its 2013 gold price forecast down to $1450 from $1700 per ounce. RBC also cut its stock price targets for major North American gold mining companies by up to 30 percent.
“Whilst there may have been a concerted effort to short the metal, in our view this was only successful due to a fundamental lack of conviction behind gold in any of its key markets, including Asia, the principal source of physical demand,” according to RBC analyst Jonathan Guy.
London bullion market maker Barclays meantime cut its 2013 average gold price by 10 percent to $1483 per ounce.
“Gold and silver, the front runners since 2009, are likely over the next few years to be among the weakest of all. We see the outlook in the near term as fragile,” said Barclays in a note to clients.
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Banks cut gold price forecasts following the recent steep plunge lower