Just a day after testing an eight-week high, crude suffered a notable setback through the first half of Tuesday’s session. Through the European trading hours, the commodity would plunge as much as 2.1 percent and subsequently disrupt the steady drive bulls have been more or less able to sustain since the dramatic reversal a month ago. However, this short-lived pull back has not yet defeated the conviction in oil’s impressive climb back towards $84, though instability in investor sentiment may thwart just such a retest of 16-month highs. In fact, today’s stumble would develop in response to rumblings in risk appetite during the European hours. Moody’s warned that should UK banks not improve their funding positions, the probability of institutional defaults would rise as the government continues to withdrawal support from the market. Turning to the nation’s Sovereign credit rating, ratings agency Fitch opined that the British government was adjusting its fiscal position at “too slow” a pace. In the Euro Zone, the focus turned back to Greece and the threat the nation posed to the Union. Both ECB Member Axel Weber and EU Commission President Barroso both remarked that the European Monetary Fund would be ill suited to solving the “urgent” troubles that Greece is confronting. While the fear that this collective sentiment may have been able to induce flickered out during US hours, the foundation of sentiment is nonetheless undermined.
From speculative interest to fundamental supply-and-demand, Tuesday’s macro event risk would offer little to encourage expected consumption trends. However, Weber would weigh in as the Governor of the Bundesbank on the economic outlook of Germany (Europe’s largest economy). The policy maker said the economy may have stalled through or even contracted slightly through the first quarter due to the inclement weather in the opening months. Nevertheless, he would suggest that the recovery was still “essentially intact.” Taking measure of global demand, the US Energy Department boosted its monthly Short-Term Energy Outlook to 85.51 million barrels from the 85.3 million projected last month. Furthermore, setting up tomorrow’s DoE weekly inventory readings, the American Petroleum Institute (API) reported a 6.5 million barrel increase in stockpiles through the week ending March 25th. This sets an unusual precedence with an unexpected drop in gasoline and distillate inventories. The Bloomberg consensus tentatively projects a 2 million barrel increase from this more influential report. If realized, a sixth consecutive weekly increase would extend the longest stretch of gains since May and further push holding to their highest level since August.
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Commodities - Metals
China’s Disinterest in Gold Does Little to Help the Metal
Spot Gold - $1,121.69 // -$1.86 // -0.17%
Gold extended its retracement Tuesday; but the market would work to recover much of the 1.3 percent loss tallied through the opening first half of the day. With market statistics showing a rise in open interest behind the active futures contract on the COMEX to a January 26th high of just over a half million contracts, speculators’ influence over price action is rising. Coincidently, the precious metal would follow risk appetite trends through much of the day. Through the European session, the warnings by Fitch and Moody’s about the UK sovereign rating and the nation’s banks elicited a sense of caution. Warnings from European policy officials that there was no quick solution to Greece’s financial troubles would further add to the weight on the currency. Stability in US equities and a pullback in the dollar through New York hours would help stabilize the metal. Between the commodity’s attachment to speculative interests and its role as a safe haven amid sovereign debt rating concerns, there is debate over direction. However, if well-funded buyers cannot materialize to support actual purchases; the future trend will have already been decided. China has long been anticipated to be one of the larger potential buyers of the metal as the nation has enormous reserves and is attempting to diversify away from the US dollar. Thereby, commentary from the head of the State Administration of Foreign Exchange, Yi Gang, that the nation is “unlikely” to seek gold as its primary diversification target removes a considerable source of potential strength. Furthermore, Yi remarked that over the past 30 years, the commodity exhibited far too much volatility to make for a reasonable long-term investment.
Spot Silver - $17.32 // $0.07 // 0.41%
Though silver were ultimately end the day little changed, the metal was pitched into a significant decline through the morning alongside equities and growth-dependent currencies. From a trend perspective, the session’s dramatic reversal would further issue the first lower low seen in five days. Looking for guidance from both risk trends and the US dollar, stalled progression from both has subsequently curbed the metals trend. Either EURUSD or the Dow will have to make a meaningful move for silver to revive or reverse its recent trend.
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Written by John Kicklighter, Strategist
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