Precious Metals & Energy - Weekly Review and Calendar Ahead

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Precious Metals & Energy - Weekly Review and Calendar Ahead
Credit: © Reuters.

By Barani Krishnan

Investing.com -- Another Federal Reserve meeting looms and markets are all psyched up, with stocks likely to fall the next 48 hours as the dollar rises on (more) speculation of a stimulus taper. Whether this, or the reverse, happens, the more probable thing at the end of next week is that gold will be in the toilet again - metaphorically, of course.

This is because the script has been almost the same the past 12 months: Good US economic data; dollar rockets, gold crashes. Bad US data; dollar tumbles, gold pauses or struggles to rally. Non-consequential US data; dollar pauses, gold falls a few notches.

No matter the data, gold seems doomed.

It’s quite normal these days to see the yellow metal cave $30-$40 an ounce at a time and recover just about half of that over several days or even weeks. Seldom is the rebound commensurate with the fall and almost never does it overshoot the other way. It can, however, lose in a few hours twice of what it may have taken weeks to build.

Proof was on Thursday when gold slumped $50 at one point to a five-week bottom of $1,745.50. The meltdown came as rival dollar catapulted on data showing upbeat U.S. retail sales for August that put the economy in ebullient light after weeks of challenging data from Covid’s Delta variant.

Gold is also in an inflection point ahead of the Sept 21-22 Fed meeting that could revisit the subject of taper for the central bank’s stimulus program that has juiced stock prices over the past 18 months. Chairman Jay Powell and his senior most Fed colleagues have so far issued mixed messages on the taper, with the broad market consensus being that any trimming of the central bank’s monthly bonds-asset buying may not occur until November.

An absence of a taper announcement could put a cap on the dollar and Treasury yields and extend a lifeline to gold.

Even so, gold might not be able to sustain its rebound unless it breaks above $1,836, says technical chartist Sunil Kumar Dixit of SK Charting in Kolkata, India.

For what is supposedly the world’s ultimate haven and hedge against the dollar and fiat currencies, gold has been an epic failure.

It hasn’t always been like this, of course.

Just slightly over a year ago, gold hit record highs above $2,000 an ounce after a dizzying six-month run as the dollar and the yield on the U.S. 10-year Treasury note both broke down at the height of the Covid outbreak.

So, has everything changed since? Yes, but in a way that’s supposed to favor gold actually. The Fed, in its attempt to rescue the pandemic-distressed economy, has spent almost $2.2 trillion buying bonds and other assets over the past 18 months and seems happy to throw more money at the problem despite things being a lot better now than in March 2020 when it began the exercise.

It’s not just the central bank that’s spending. Federal government aid for Covid, which began under the Trump administration, has reached at least $4.5 trillion to date. And the Biden administration is asking Congress to approve almost $4 trillion more for its so-called “Build Back Better” plan.

The eye-watering bill to fix America should have decimated the dollar by now and sent gold, the inflation hedge, to parabolic heights beyond last year’s $2,000 record. Instead, Uncle Sam’s currency is doing well as the reserve legal tender of the world. It’s gold that’s down. Historically known as the “real currency”, an ounce of the yellow metal is down more than $300 from its August 2020 peak. Talk is it may even break below $1,600 at the rate it’s melting. If that were to happen, it would wipe out almost all of the 2020 rally.

 Various theories have popped up for gold’s idiosyncrasy versus the dollar.

One is how Bitcoin has sucked up a chunk of the safe-haven flows meant for gold since November, when the efficacy of Pfizer’s Covid vaccines were first announced and appeared to be a game-changer for the risk-versus-safety trade.

There’s also the conspiracy theory that the Fed is intentionally willing gold to be suppressed, in order to keep the Dollar Index above the key 90 level. The work is apparently done by so-called bullion banks that are in bed with the central bank. What isn’t clear is the mechanics of the manipulation and how it’s being done. You’d also imagine a rogues’ gallery of suspects being involved. But the truth is, just one Wall Street name that keeps popping each time the theory is floated. Google (NASDAQ: GOOGL ) it and you’ll find it.

Another conjecture making its rounds is that gold has just “lost it” as an inflation hedge and that the Fed will somehow contain the pressures bubbling from America’s runaway spending. Inflation will be contained, so no need to buy gold; in fact buy more stocks is this BS theory.

But there’s a more acceptable reason for gold’s behavior. And that, according to Lance Roberts, of Houston-based investment house RIA, has “absolutely nothing” to do with gold itself and everything to do with investors who have gotten too brazen with inflation under a Fed holding to its exorbitant stimulus despite every sign that it should start tapering. These are people who’re too deeply ensconced in the comfort zone of a S&P 500 whose last meaningful correction was a year ago.

What ails gold is the absence of fear among this crowd who’ve become as dizzy as the financial system that’s been erected upon the beach sand of easy, artificial credit, Roberts says in a post covered by markets blogger Brian Maher.

“There is presently no ‘fear’ present to drive investors into the psychological safe haven of gold,” Roberts said. “That lack of fear is evident in everything from: Record issuance of money-losing IPOs; mass issuance of SPACs; record margin debt levels; near-record stock valuations; retail investors taking on personal debt to invest; Bitcoin; and last but not least - belief by investors of the ‘Fed Put’”.

Roberts continues:

“Given that gold is no longer exchangeable for currency, and vice versa, the broken link as an inflation hedge remains. In today’s “fiat” currency economy, the ability to use gold as a method for transactions on a global scale remains destroyed. Therefore, gold has become a “fear trade” over concerns of the dollar’s demise, inflation and an economic reset.”

“While there are valid reasons to be concerned with such disastrous outcomes, those events can take decades to play out… the ‘bug has yet to hit the windshield.’ Yes, it eventually will, but how much longer it will take is unknown.”

Gold Market & Price Roundup

A ramping dollar and U.S. Treasury yields gave little respite on Friday to gold prices trying to rebound from the previous day’s meltdown, with the yellow metal settling down for a third day in a row and booking its worst weekly loss in six.

 U.S. gold futures’ most active contract, December ,  settled down $5.30, or 0.3%, at $1,751.40 per ounce on New York’s Comex. For the week, it fell 2.3%, its most since the week to July 29.

 Oil/Gas Market & Price Roundup

Oil cruised to a fourth straight weekly gain, riding on the impact of unexpected supply shortages from the three-week old Hurricane Ida, despite a risk-off sentiment across markets on Friday that weighed partially on crude prices.

New York-traded West Texas Intermediate , the benchmark for U.S. oil, settled at $71.97 per barrel, down 64 cents, or 0.9%. WTI was up 3% on the week though.

London-traded Brent crude, the global benchmark for oil, finished Friday’s official trade at $75.34, down 33 cents, or 0.4%. Brent also rose about 3% on the week.

Crude prices came under pressure on Friday as Wall Street sagged on a closely-watched University of Michigan consumer survey that found Americans’ desire to purchase houses, cars and household items near a record low due to their high prices. Consumers account for more than two-thirds of the U.S. economy.

Also weighing on markets was President Biden’s plan to raise corporate taxes by 5.5 percentage points to 26.5% and next week’s Fed meeting that could revisit the subject of taper for the central bank’s stimulus program that has juiced stock prices over the past 18 months.

“It’s a risk-off day that scalped a few heads, including oil’s,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “But crude is still cruising on the supply tightness caused by Ida. There’s some talk today that the situation is easing. But it’s nowhere near enough to cause a meaningful correction in oil that will happen - at some point.”

Ida forced the closure of 90% of oil and gas production facilities on the US Gulf of Mexico prior to making its landfall on Aug. 29.

As of Thursday, some 18 days after the storm’s landfall, some 513,878 barrels equivalent of oil, or 28.24% of the production in the U.S. Gulf Coast of Mexico remained shut-in, according to the Bureau of Safety and Environmental Enforcement, the government agency monitoring the situation.

U.S. crude stockpiles dropped by 6.422 million barrels in the latest week to Sept. 10 on heavier-than-expected drawdown from inventories by refiners facing a squeeze in domestic crude supply, data from the Energy Information Administration showed.

Analysts polled by Investing.com had forecast a drop of 3.544 million barrels for the week to Sept. 10. In the previous week to Sept. 3, crude draws hit four-week lows from Ida-related disruptions.

Energy Markets Calendar Ahead

Monday, Sept 20

Cushing crude inventory estimates (private)

Tuesday, Sept 21

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Sept 22

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, Sept 23

EIA weekly report on natural gas storage

Friday, Sept 24

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.

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