Fundamentals

Gold’s Bullish Momentum Stabilizes ahead of US Employment Report

North American Commodity Update

Commodities – Energy

Crude’s Inventory Rally has Diminished Leaving Risk Appetite to Decide Whether New Highs are in Store

Crude Oil (WTI) -  $80.24  //  $0.64 //  0.80%

A mixed sense of risk appetite and a tempering of fundamental bullishness following Wednesday’s Energy Department inventory figures have stalled oil’s advance just on the other side of what could be considered a meaningful break above $80 per barrel. Yesterday, the DoE reported an unexpected and sharp 3.94 million barrel drop in crude inventories, a surprise 287,000 barrel decline in gasoline stores and a 378,000 contraction in distillate stock through the week ending October 30th. However, these weekly figures do not significantly reduce the substantial glut of energy stockpiles, nor does it boost demand to further work the surplus down.

Adding to the supply and demand picture today, the EIA reported middle distillates (which include heating oil) fell 378,000 barrels to 167.4 million barrels (falling short of the one million barrel decline forecasted). Nonetheless, supplies are still approximately 30 percent above the five-year average for the period. European inventory numbers would show similar imbalances. According to PJK International, gasoil inventories in the Amsterdam-Rotterdam region (Europe’s energy hub) rose 1.2 percent to 2.67million tons in the week through today. Fuel oil stores climbed 12 percent to 759,000 tons. Looking ahead to tomorrow, sentiment will likely take the lead on price action with the US NFP release certain to – if not stir volatility – at least stabilize price action before the release. A more distant concern is the temperate weather seen recently and its inability to work down stores. Hurricane Ida has formed off the coast of Nicaragua; but it is still far from the US Gulf Coast. There have been few big storms to disrupt production and shipping in this regions (one of the largest for processing in the world).

Commodities – Metals

Gold’s Bullish Momentum Stabilizes ahead of US Employment Report

Spot Gold  -  $1092.40 //  $7.80  //  0.72%

Momentum was still the primary element of price action for gold Thursday. Extending the aggressive rally following the Indian Central Bank’s large gold purchase from the IMF this past Tuesday, the metal was attempting to close a fourth consecutive advance (but struggling to do so as risk appetite wavers). Expectations for other monetary policy authorities around the world to increase reserves of the precious metals is questionable. The desire to diversify is justifiable if reserves are made largely of one currency (such as the US dollar). However, gold is an expensive and equally volatile alternative; which will work against its wide-spread adoption among central banks. For large investors, there is no doubt as to the commodities appeal of an inflation hedge; but the threat of price pressures is distant at best (and we could easily see a speculatively-driven correction before such demand ever develops). For the immediate future, Friday’s US employment report will anchor risk appetite before its release and has a high probability of sparking volatility afterwards. Gold will likely fall back on its sentiment link for the event. In other news, SPDR Gold Trust (the world’s largest fund backed by the metal) reported its holdings were unchanged at 1,108.4 tons while ETF Securities reported a 1.4 percent drop to 7.838 million ounces.

Spot Silver  -  $17.44  //  $0.24  //  1.39%

Spot silver’s rally ebbed and Thursday’s session reflected lower levels of volatility. Holding above $17.25 per ounce, there is still a speculative buoy to prevent an immediate reversal of the aggressive advance earlier this week. Today’s macro-economic event risk was forceful enough to drive equities and bonds; but silver was not so responsive.  For speculative interests, ETF Securities’ silver holdings rose 0.1 percent to a record 21.438 million ounces. However, open interest the active NYMEX contract continues to fall off from last week’s early tumble.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com