Precious metals and energy – weekly review and upcoming agenda
By Barani Krishnan
Investing.com – Could Gold Reach $3,750?
The world is not even sure of a return to $2000 for gold in the near term. However, much higher expectations are already being set.
While it is easy to dismiss any bullish call for the yellow metal as odd and any sharp bearish forecasts as absurd.
But if the chart on either side of the extreme zone turns out to be correct for gold, then we can prepare for some massive volatility that could occur in the coming weeks and months.
As of Friday’s close, gold is back at its high of $1,900 after erratic 72-hour moves after reclaiming the price point it lost 20 weeks ago.
The yellow metal also set another milestone – for the month of May – as trading was effectively closed for the month, ahead of the Memorial Day holiday: a gain of 8%, the best since July, or in 10 months.
While a lot of gold’s moves in May were predicted by data on inflation – the other thing that was supporting a resurgence in the metal.
Inflation data over the past few months has also alarmed economists who fear 2021 will see the biggest price hike in 35 years as the cost of almost everything, from homes to the wood used to build them, has risen.
Also, Treasury Secretary Janet Yellen said Thursday that the sudden rise in the US inflation rate from last year is likely to be a temporary phenomenon caused by material shortages in an economy recovering from COVID-19, and the high annual numbers may continue each month through the end of the year.
All things being equal, a higher inflationary environment is good for gold, which is seen as the best store of value in times of financial and political turmoil.
However, gold’s rivals, the dollar and US bond yields, have risen in recent months instead on signs of rising inflation, as investors bet the Federal Reserve will raise interest rates faster than expected – something the central bank has sworn to. against him. Such speculation also led to gold selling that pushed it to an almost 11-month low below $1,674, before yields slumped and the dollar helped the yellow metal back to $1,900.
The Federal Reserve acknowledges the price pressures arising from bottlenecks in US supply chains. The central bank has targeted annual inflation of 2% for the past decade. But it has barely achieved that goal, with critics attributing the mismatch to the central bank’s stubborn following of the personal consumption expenditures index – a tamed index that stripped food and energy costs, the two most volatile components of inflation.
On the other hand, the Consumer Price Index, which includes food and energy components, grew by 4.2% in April for its biggest increase in nearly 13 years amid rising costs in an economy rapidly recovering from the coronavirus pandemic.
Regardless of the inflation controversy, gold’s multiple chart readings suggest high enough to lift the metal to record highs in August at $2000 and above.
Among them are readings from Investing.com contributor Chris Vermeulen, which assumes a first major break above $2,067, which, if it continues at full capacity, could reach $3,750.
“The recent move above $1,900 in gold shows that the precious metal is likely entering a new bullish price phase,” Vermeulen wrote. “And if our research is correct, gold may continue to rise – peaking sometime near mid-October 2021.”
Once gold is liquidated from $1960 to $165, it should continue to advance to $2,067, then $2,305 fast, Vermeulen says.
“And it is important to understand how the price moves in advance/downward waves/phases over time.”
“At this point in the precious metals rally, which I think is very similar to the 2003-2006 rally in gold, we may see gold continue to rise while US/global markets continue their moderate upward trend.”
Vermeulen says there has been a shift in how capital is deployed in anticipation of tightening by the Fed and global central banks – when that happens.
Whereas a similar process occurred in 2005-2007 when the Federal Reserve raised interest rates in an attempt to shrink the markets in an orderly manner. But stock indices and precious metals continued to rise as traders and investors already began to hedge the risks of an unknown event in the market, even as the central bank continued to raise interest rates.
Vermeulen also said that the Fed is widely seen as raising interest rates any time between next year and 2023, and there is strong speculation that the central bank will have to act early to avoid inflation concerns. He adds that: “The parallels between the 2004-2007 gold rally with what we’re seeing in gold now are strange.”
Vermeulen says that if it plays as written in that cycle 15 years ago, gold will likely rise to $6,500, although he asserts that he is “focused on the target level near $3,750 for the time being”.
While skeptics of gold’s current rally made the metal fall back below $1,830.
Among them is Sunil Kumar Dixit from SK Dixit Charting in Kolkata, India.
Dixit said that if gold regains strength at $1,900, it is likely to rise to $1,922, then $1,958, making what can be defined as a “triple top formation”, before dropping to between $1,848 and $1,828. .
“For me, the odds of a pre-1960 drop are much greater than a promising rally above $2,000,” he adds.
While Dixit does not consider himself proficient in gold at all. He actually loves metal, but not so much that he is blind to the dangers in his path. As such, he calls himself a “realist”.
Like him, the return of gold to levels of $1,900 is logical, belated and even fantastic, after the grueling journey he went through earlier in the year.
But after several false starts during the small rallies in the $1700 and $1800 levels, skepticism is understandably growing among this crowd.
Gold market and price report
The Comex settled at $1,903.60 ahead of the weekend, after settling Friday’s trading up $6.80, or 0.4%, at $1,902.5 an ounce.
The most active Comex for the month of August also settled higher on Friday trading $6.80 at $1,905.30.
The spot price of gold, which reflects real-time trading in bullion, also settled at $1,903.66, up $7.16, or 0.4%.
Whereas traders and fund managers sometimes decide the direction of gold by looking at the spot price – which reflects bullion for immediate delivery – rather than futures contracts.
Oil market brief and price reportتقرير
As for West Texas Intermediate crude for July delivery, the benchmark US oil benchmark finished trading at $66.66 before the weekend, after settling Friday’s trading down 53 cents, or 0.8%, to settle at $66.32. Over the week and month, WTI is up 4.3%.
The benchmark price before the weekend traded at $69.01 after trading on Friday settled down 74 cents, or 1%, at $68.72. Over the course of the week, Brent rose 3.4% while in May it rose 2.2%.
While oil prices fell on Friday but rose over the course of the week and month as average pumped gasoline prices hit a seven-year high of more than $3 a gallon on Memorial Day weekend on Monday.
Memorial Day unofficially marks the start of the peak summer driving season in the United States, and the American Automobile Association is expecting up to 37 million passengers for the occasion this year, up 60% from last year’s 23 million quenched. Those who drive for three days usually fill their tanks more than once, which usually results in a bounty of gasoline consumption.
Oil prices rose in anticipation of this demand, along with pump prices that have been trending higher for weeks.
“The average retail price of regular gasoline in the United States on May 24, the Monday before Memorial Day weekend, was $3.02 a gallon, the highest price for pre-Memorial Day gasoline since 2014,” the US Energy Information Administration said in a posting.
The Energy Information Administration said pump prices were also up $1.14, or 61%, from a year ago.
While bets on consumption on Memorial Day helped oil prices offset persistent concerns about a possible increase in supplies from Iran entering the market in the coming months if Tehran succeeds in striking a new nuclear deal with world powers that would lift US sanctions on its crude exports.
WTI and Brent also received support from US government data which showed a stronger-than-expected decline in inventories, gasoline and distillates last week.
The energy market agenda
Monday May 31
Memorial Day holiday
Tuesday 1 June
Cushing’s own stock estimates
Wednesday 2 June
Thursday 3 June
Friday 4 June
Disclaimer: Barani Krishnan does not hold a position in the commodities and securities markets he is writing about.