Fundamentals, Oil & Gold

Oil Surges Through Monday’s Session as Risk Appetite, Macro Data Spark Buying

North American Commodity Update

Commodities – Energy

Oil Surges through Monday’s Session as Risk Appetite, Macro Data Spark Buying

Crude Oil (WTI) – $78.80  //  $2.45  //  3.21%

Under most circumstances, fundamentals are just not influential enough to trounce speculative interests when it comes to crude (or most other markets for that matter). Despite closing at a fresh monthly low this past Friday, bulls would quickly recover through Monday’s session on a strong macro data while further exercising its appeal as a trader’s instrument. While there were a few drivers that could be highlighted for driving crude higher through the day; the most influential factor was the taste for risk that evolved as we moved from one session to the next. Equities were off to a mixed start in the Asian session; but by the active European trading hours, momentum was building behind the bullish crowd. The broader commodity complex followed a similar direction; but the pace was arguably far more aggressive for the physical goods. Adding to the mix, suffering for its role as a safe haven, a weak US dollar would further bolster the value of crude. The 20-day moving average (one month) for aggregate open interest has been eased since the market peaked last month around $82.

For more rudimentary, fundamental factors; there was finally a round of news that would look to counteract the pervasive bearish pressure measured in bloated inventories. The growth outlook for both the US and Japan (the world’s first and second largest economies) was brightened by key indicators released in the morning sessions of their respective market hours. The Cabinet Office reported 4.8 percent annualized growth through the second quarter – far outpacing the 2.9 percent pace economists had expected. Carrying less weight, but nonetheless a notable driver in itself, the US Commerce Department reported retail sales for the month of October grew a greater-than-expected 1.4 percent (though there are questions as to how much of this strength can be attributed to discretionary spending). Switching from demand to supply side fundamentals, OPEC President Jose Botelho de Vasconcelos said the oligarchy was still debating production levels for its December meeting. He said that the range of $75 to $80 was “a good price” and the economy could “recovery” at that level. However, more pressing for production projections, he went on to suggest that the available inventory in the market would last for 62 days – much higher than the 52 to 53 days that he would consider normal.

Commodities – Metals

Gold Surges to a Record High as Speculative Interests Move on Momentum, Dollar and Inflation Hedge

Spot Gold – $1,138.40   //  $19.70  //   1.76%

While the dollar was edging into 15-month lows and equities were climbing to new highs yearly highs; gold was the indisputable leader for the day. Despite pushing record highs, the commodity would still produce its sharpest rally (on a net basis) since November 3rd and one of the most impressive days this year. There was little doubt that this strength found its roots in speculation. As a key alternative for the greenback outside of the FX market, the commodity has proven itself a high-profile destination for a market that is growing more comfortable with risk and demanding for return. The better-than-expected US consumer spending report released in the early US session further leveraged its role as an inflation hedge. The iShares TIPS fund jumped to a 14-month high 105.40. Neither of these bullish facets could carry the metal without the full support of speculative interests however. Momentum is helping to fuel the market’s run to untested highs. The 20-day average of aggregate volume on the active NYMEX contract rose to a 13-month high of 160,000 contracts while the same average for open interest hit a 21-month high 508,000 contracts. In response to today’s sharp rally, the CBOE Gold volatility index jumped 2.5 percentage points to 24.55 percent.

Spot Silver – $18.34  //   $0.91  //  5.19%

Where gold found considerable strength in yet another push to record highs; spot silver would produce a far more impressive advance that was charged with breaking a month worth of congestion. Clearing the closely watched $18.00/10 level in an astounding five-plus percent rally, the commodity is now testing prices not seen since mid-July of last year. Perhaps degrading the significant price movement today however, the London Bullion Market Association reported silver trades dropped 11 percent to a daily average of 101.1 million ounces through October. Considering the highs it is currently pushing, turnover will likely be heavier through November.

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