The situation in the Middle East has cooled down! The high level of the year has fallen by more than 5%, and the safe-haven market for gold and crude oil has ended?
As concerns about the spread of conflict in the Middle East eased, investors reduced their bets on safe-haven assets, putting pressure on gold, oil and bond prices.
At the same time, the U.S. dollar index fluctuated to the upside, holding the 106 mark, and while continuing to focus on geopolitical factors, investors also turned their attention to the prospect of a resurgence in inflation and the Federal Reserve cutting interest rates this year.
Middle East "cooling" gold "fire"
At a time when geopolitical tensions are not at risk of escalation, capital interest in risky assets such as equities has picked up. International gold prices plunged nearly 3% on Monday, falling below the $2,350 mark, the biggest one-day drop since February last year.
Marios Hadjikyriacos, senior investment analyst at XM, believes that from the "measured" counterattack, it is clear that both Israel and Iran are not interested in the actual war, "and the same is true for the United States, which has been trying to ease tensions behind the scenes." As a result, investors are pouring into riskier trades and liquidating hedges in the hope that the situation will be brought under control. ”
Jake Hanley, managing director and senior portfolio expert at Teucrium, said gold prices are up about 15% so far this year. Since $2,400 has been unbeaten for a long time, this may be enough to trigger some investors to choose profit-taking.
The monetary policy outlook is expected to take its place as an anchor for gold prices. Adrian Ash, director of research at Bullion Vault, believes that if the situation in the Middle East cools, the challenge for gold will be the US Federal Reserve and US Treasury yields. "With bets that the Fed will soon start cutting interest rates gone, the cost of funding speculative longs has risen sharply. He said.
Markets are now awaiting Friday's U.S. Personal Consumption Expenditures (PCE) report for clues on the Fed's interest rate cut prospects. Notably, Chicago Fed President Austan Goolsbee said last week that progress in reducing inflation had "stalled" this year, becoming the latest member to abandon his dovish stance.
Daniel Ghali, commodity strategist at Canada's TD Securities, released a report saying, "The gold sell-off trend is becoming more and more obvious, and the key is how much room there is for decline." If the PCE report shows that inflation has cooled more than expected, gold could hit record highs again. We still expect buying activity in Asia to remain resilient as gold is seen as a hedge against currency appreciation in the region. ”
Hanley believes that inflation risks mean that restrictive monetary policy will continue for a longer period of time, and that high interest rates will eventually create significant headwinds for gold, as it will attract investors' interest in the dollar. Looking ahead, he expects gold to test the near-term key technical support level of $2,300. If it is effectively broken, gold could test as low as $2,200.
Crude oil fundamentals have loosened
Compared with gold, the adjustment of oil prices was relatively earlier, and international crude oil futures have fallen for two consecutive weeks. Israel's retaliation against Iran on Friday only triggered an impulse rally, and oil prices have completely given up gains by the end of the day.
Tamas Varga, senior market analyst at PVM Oil Associates, a crude oil broker, said in an interview with CBN that oil prices are beginning to gradually digest the war premium, "so far, Israel has complied with the international community's call for restraint, and the market's fear of the spread of the conflict has begun to dissipate." ”
Phil Flynn, senior market analyst at Price Futures Group, believes that both Israel and Iran seem to indicate that the-for-tat response is over, and the Biden administration will have a say in the intensity of sanctions. "With the election approaching and consumers already complaining about inflation and gasoline prices, the U.S. is unlikely to impose harsh punitive measures. He wrote.
Iran sold an average of 1.56 million barrels of oil per day in the first quarter of this year, the highest level since the third quarter of 2018, according to data firm Vortexa. Armen Azizian, a senior analyst at Vortexa, said the U.S. had recently begun targeting individual tankers suspected of carrying Iranian crude, but so far the impact on Iranian oil exports has been "minimal." Over the past year, Iran's fleet for transporting oil has grown by a fifth to 253.
Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors, said that in fact, the situation in the Middle East has not had an impact on the fundamentals of the oil market. Markets have been worried that Iran could close the Strait of Hormuz, a sea lane between the Persian Gulf and the Gulf of Oman, considered the world's most important oil transit chokepoint. But Iran cannot close the Strait of Hormuz, which is also not in its own interests.
The fundamentals have also cooled down. Varga told Yicai that the demand release expectation has not continued to improve, and the contract forward discount for WTI and Brent crude oil has continued to shrink since April. As refineries reduce utilization, inventories of major products fall while crude inventories increase. However, refineries have been supplying less than 20 million barrels per day of refined product, suggesting weak domestic demand.
On the other hand, the strength of the US dollar after the Fed's interest rate cut is postponed will also put pressure on crude oil. With the U.S. economy still relatively hot due to strong labor markets and retail sales, coupled with gasoline prices and housing costs, no one believes that the road to 2% inflation will be smooth sailing, no wonder Fed officials stressed the need for more evidence to cut interest rates, Varga analysis. He told Yicai that in the absence of actual supply/production issues, crude oil no longer has the ability to challenge the year's highs in the short term.
(This article is from Yicai)