Oil and gold prices took big hits last week amid the volatility in base metals, coal and iron ore.
A combination of weak demand, more data showing expanding production from OPEC countries and a continuing scepticism about the November 30 meeting of OPEC coming up with any sort of credible cap on production, drove oil prices lower, especially on Friday.
The market weakness of both gold and oil tells us more about the way the hard heads in the markets see the benefits of the Trump Presidency – more than any silly airy fairy trading in shares and base metals based on mythical winners and losers over the next four years.
Weaker demand, higher interest rates and higher inflation are what the real speculators fear from the Trump Presidency. And when he his borrowing hundreds of billions of dollars and slashing taxes (and the size of government) – the markets fear a nasty crunch is looming.
That is also why US bonds yields soared last week as investors sold – up to $2.12% or more than 20 points.
In New York, December West Texas Intermediate crude futures fell $US1.25, or 2.8% to settle at $US43.41 a barrel, the lowest settlement since mid-September, according to FactSet data show.
In London, January Brent crude fell $US1.09, or 2.4%, to $US44.75 a barrel. Brent prices hadn’t ended below $45 since August. WTI crude lost around 5.5% over the week, while Brent crude ended 1.8% lower for the week after posting losses in each of the past three weeks.
Adding to the pressure on sentiment was the news that the US Energy Information Administration reported a rise of 170,000 barrels a day in total US crude production for the week ended November 4.
And data from Baker Hughes on Friday revealed that the number of active US rigs drilling for oil, a proxy for oil activity, rose by 2 to 452 rigs this week, but the total active rig count, which includes oil and natural-gas rigs, fell by 1 to 568 as one gas rig was taken out of service.
Prices for natural gas, meanwhile, posted a decline of more than 5% for the week after a U.S. government report showed supplies of the fuel rose to a record last week.
Concerns continue about whether OPEC has the ability to reach a binding agreement on a production cut at the group’s annual meeting on November 30.
“If the supply surplus persists in 2017 there must be some risk of prices falling back,” the International Energy Agency (IEA) said in a report published on Thursday.
And the monthly report from OPEC issued Friday said output from the group’s members climbed by 240,000 barrels a day in October to 33.64 million barrels a day, with Nigeria, Libya and Iraq blamed for the increase.
The day before the IEA estimated OPEC production in October at a record 33.83 million barrels a day. Last week, S&P Global Platts said it reached 33.54 million barrels a day for that month, and a Bloomberg survey showed a total of 34.02 million barrels a day.
OPEC’s plan, reached in late September is to curb production to between 32.5 million and 33 million barrels a day. The group has said it would hash out details, including individual member quotas, at its half yearly meeting on November 30 in Vienna.
Non-OPEC producers, such as Russia are expected to reveal if they will co-operate with any OPEC cut back. Meanwhile, gold was also hit as the US dollar strengthened on expectations a Trump Presidency will bring more spending, more inflation and higher interest rates.
As a result Comex gold futures for December delivery fell $US42.10, or 3.3%, to settle at $US1,224.30 an ounce—the lowest close since early June, according to FactSet data.
Over the week, Comex gold futures lost around 6%, the biggest drop since the week ended June 21, 2013, when they slumped nearly 7%. Comex December silver was whacked hard by nervy investors, losing $US1.355, or 7.2%, to $US17.382 an ounce, the lowest finish since early October.
Silver lost around 5.4% over the week as investors concluded that instead of being ‘good news’ for so called safe have investments, the Trump Presidency will drive US interest rates higher, along with the dollar, crimping the ability for gold and silver to make gains.
But even the prospect of higher inflation (the October consumer inflation data for the US is out later this week) isn’t enough to convince investors to chase gold and silver for ‘havens’ at a time of rising economic uncertainty.
