Saudi Arabia calls for enhanced international cooperation to address water sector challenges    Survey: 60% will use Riyadh Metro to go for work or school    GCC Preparatory Ministerial Meeting discusses developments in Gaza and Lebanon    Saudi Arabia hosts over 13 million foreign residents from 60 countries, says human rights official    RCRC Chief: Riyadh Metro, featuring environmental sustainability, will improve quality of life and revolutionize transportation    Al Taawoun seals AFC Champions League Two knockout spot with 2-1 win over Al Khaldiya    Al-Jasser: Riyadh Metro to accommodate one million passengers daily    Al-Jasser: 122,000 jobs generated in transport sector in a year    Israelis survey damage and mull return to north as ceasefire begins    Israel to appeal against ICC warrants for Netanyahu and Gallant    Trump nominates Keith Kellogg as special envoy for Ukraine and Russia    Missing hiker found alive after more than five weeks in wilderness    Elon Musk publicizes names of government employees he wants to cut    Al Hilal advances to AFC Champions League knockout stage despite 1-1 draw with Al Sadd    Best-selling novelist Barbara Taylor Bradford dies    Cristiano Ronaldo's double powers Al Nassr to 3-1 win over Al Gharafa in AFC Champions League    Most decorated Australian Olympian McKeon retires    Adele doesn't know when she'll perform again after tearful Vegas goodbye    'Pregnant' for 15 months: Inside the 'miracle' pregnancy scam    Do cigarettes belong in a museum?    Order vs. Morality: Lessons from New York's 1977 Blackout    India puts blockbuster Pakistani film on hold    The Vikings and the Islamic world    Filipino pilgrim's incredible evolution from an enemy of Islam to its staunch advocate    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Gold gearing up for a break
Published in The Saudi Gazette on 21 - 06 - 2020

DUBAI — Commodity markets, with a few exceptions, remain in reasonably good health as we approach the end of what so far has been a very volatile and at times troubling first-half, driven by the worst pandemic-related slump in global growth since WW2. While still down 20% on the year, the Bloomberg Commodity Index is trading up 2% this month with pro-cyclicals such as industrial metals, oil and fuel products being the main driver.
Most markets, including commodities, are currently watching the US Federal Reserve and the S&P 500 index as the key sources of inspiration. Some weakness related to rising COVID-19 cases in the US and briefly in Beijing temporarily sent stocks lower before the FOMC announced plans to buy corporate bonds. These developments continue to raise the question of whether current stock market valuations have dislocated from the real economy where growth has slumped and unemployment has jumped. The market currently behaves as if the Federal Reserve will step in at any sign of weakness.
Energy: The energy sector continues to experience a divergence between crude oil and products on one hand and natural gas on the other. Robust OPEC+ cuts together with a high degree of compliance and reports that demand continues to recover at a rapid pace have supported a strong recovery in crude oil and products since the late April nadir. In their latest Oil Market Report, the International Energy Agency (IEA) sees 2020 oil demand improving but still down by 8.1 million barrels/day, before recovering by 5.7 million in 2021. Overall, they don't see demand fully recovering until at least 2022, with a slow recovery in jet fuel demand and a change in consumer behavior cited.
While crude oil has been sent on the road to recovery, natural gas prices in the US and Europe may stay under pressure during the coming months. This is in response to stockpiles continuing their seasonal build, potentially towards capacity. US natural gas for delivery in July trades just above support at $1.60/MMBtu ahead of the March low at $1.52/MMBtu. Without a strong pickup in demand due to warmer weather or increased industrial demand, the short-term risks point to lower prices still.
Adding to the sense of unease is the prospect that the recent oil-related cut in US production may soon start to reverse. With WTI crude oil back above $40/b shale oil producers stand ready to increase production, an event that will yield additional associated gas production. Another challenge is the recent drop in exports of LNG with lower gas prices across the world reducing the profitability of exporting LNG when taking the cost of transportation and liquefaction into account.
Precious metals: Gold's period of rangebound trading around $1,700/oz extended into a ninth week as the metal struggled to find a theme strong enough to take it higher, or lower. The lack of positive response to additional central bank stimulus, the recent dollar weakness and lower real yields have all helped drive a reduction in speculative longs held by hedge funds in the futures market. Since the February peak they have cut bullish bets by 55% to the lowest in a year.
Bullion-backed exchange-traded funds, meanwhile, have continued to go from strength to strength with total holdings according to Bloomberg data having risen by 565 tons to 3138 tons so far this year. Thereby, more than off-setting the pandemic and lockdown-related drop in physical demand from the world's biggest gold consumers in Asia.
Rising demand for ETF's have come from all types of investors from retail to pension funds and some of the world's ultra-rich. Nine private banks interviewed by Reuters, which collectively oversee around $6 trillion in assets for the world's ultra-rich, said they had all advised clients to increase their allocation to gold.
Two of several reasons we have mentioned these past few months for maintaining a bullish outlook, debasement concerns and lower real yields, were highlighted in the latest note from Goldman Sachs. In it they raised their six-month price forecasts for gold to $1,900/oz and not least silver to $21/oz. The latter representing a gold-silver ratio at 90.5, a 9% outperformance relative to the current market.
Recent price action in precious metals highlights their ability to frustrate and the need to be patient. The trigger that's needed to propel the market higher is currently missing given the risk-on and optimism seen across financial markets. These developments, however, do not change our view that gold will act as an important diversifier in the short-term, while in the long-term it is likely to prosper as the dollar weakens and real yields move lower as inflation rise.
Adding to this are increased geo-political risks, potentially fueled by COVID-19 blame game, especially with polls pointing to a significant defeat for President Trump this November. Furthermore, the pandemic risks speeding up the deglobalization and reshoring process that started with the US-China trade war.
Spot gold has yet to close above $1,750/oz and if and when that happens we suspect renewed momentum and fresh buying from underinvested hedge funds will propel the price higher towards $1,800/oz and silver towards $19/oz.
Softs: Arabica coffee, cocoa and to a lesser extent sugar, are showing little or no signs of the V-shaped recovery shown via the strong performance in stocks and general appetite for risk. Coffee has dropped below $1/lb in its longest slump in 10 months as a record Brazilian production and a weak Brazilian real meet muted demand from out of home demand through restaurants and coffee shops.
Sugar consumption is expected to drop as consumption suffers and ethanol-based demand has dropped with crude oil. A similar story emerging in cocoa, the demand for which is closely linked with GDP growth. It has dropped to a two-month low amid mounting worries that the slowdown will hurt demand. On June 9, hedge funds held short positions in coffee and cocoa and a small long in sugar.
— The writer is head of commodity strategy at Saxo Bank


Clic here to read the story from its source.