Commodities Corner: Key week for the yellow metal

Company News

by Glenn Dyer

Even though the latest Australian government Resource and Energy Quarterly is bullish about the outlook for gold, especially from next year onwards, the short-term situation soured somewhat last week as the metal dipped under the important $US1,800 an ounce level and kept falling.

Gold fell nearly 4% last week after another weak session on Friday after the better-than-expected US jobs report for June with 372,000 new positions created, against the forecast for just 250,000.

That is being seen as guaranteeing another 0.75% rise from the Fed later this month.

Gold traded as low as $1,733 an ounce on Friday in London, down 16% from its intraday high for the year of $US2,069.89 reached on March 8 in the early phase of Russia’s invasion of Ukraine two weeks earlier.

Gold later settled a little higher at $US1,742 on Comex in New York, and then drifted lower in afterhours trading to around $US1,741.

Analysts say the undermining gold in the past couple of months has been the outflow of money from gold exchange traded funds.

According to the World Gold Council (WGC), investors withdrew $US1.7 billion in June from ETFs that track the gold price, a second consecutive month of outflows following $US3.1 billion moved in May.

The $US4.8 billion of withdrawals in May and June plus the slide in gold prices have lopped 7% from the value of global gold ETF in that time. Global gold ETF assets, which peaked at $240 billion in March, remain 5.9% higher than at the start of the year.

Seeing as gold prices are down (Comex) nearly 5% year to date, the rise in the value of the gold ETFs looks like continuing optimism among some investors that the metal will come good in the end.

As well, there’s another big negative on Comex for gold where net long positions (the excess of long bought positions over short sold positions) has dropped sharply since March and recently touched its lowest level since 2019, indicating that fewer institutional investors expect a rally in the near term.

While the current surge in inflation would normally help polish gold’s attractions, it’s the rising interest rates everywhere (bar Japan) and firming US dollar that is creating the backwash knocking gold and silver lower.

Adding to the weakness in investor appetite for the metal, the Indian government recently announced a 5% increase in the import duty on gold, a surprising move which is likely to hit consumer demand in the world’s most important gold jewellery market.

China’s hardline zero-Covid policy is expected to continue to curb consumer demand for gold jewellery this year.

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Meanwhile pressure remained on copper last week which saw a new weekly downtrend at $US7,835 a tonne on the London Metal Exchange. In New York, Comex copper fell 1.4% on Friday to $US3.50 a pound, and pushing the weekly loss out to 2.5%.

The copper market remains obsessed with fears of recession, which is synonymous with a decline in demand for industrial metals. But China recently announced a new stimulus package to boost infrastructure spending, a $US220 billion boost that should support demand.

But for the moment, $US4 a pound looks a long way off.

Iron ore prices fell again on Friday, weighed by the gloomy demand outlook in China.

Benchmark 62% Fe fines imported into Northern China fell 0.5%, to $US113.68 per tonne.

Singapore futures ended at $US113.40, down slightly from the previous Friday close of $US114.60.

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Chicago Board of Trade (CBOT) wheat futures soared more than 6% on Friday, extending a rebound from four-month lows earlier in the week on easing fears of a global recession and signs of renewed importer demand.

Corn also rose to move up from a seven-month low touched this week, and soybeans continued to recover from a six-month low.

The most-active wheat contract on the CBOT settled up 55 cents at $US8.9150 a bushel and touched its highest price since July 1. It rose more than 10% over Thursday and Friday.

CBOT corn rose 27.25 cents to finish at $US6.2350, while soybeans gained 31 cents to finish at $US13.9650 a bushel.

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Oil prices rose Friday but still lost ground for the week.

The two global benchmarks, Brent and US West Texas Intermediate even briefly fell below $US100 a barrel for the first time in months.

Brent traded settled at $US107.02 a barrel for a loss of 4.13% for the week while WTI fell 3.3% for the week, settling at $US104.79 a barrel

The Baker Hughes oil and gas rig count rose two to 752 last week.

Active US oil rigs rose two to 597 last week, their highest since March 2020, while gas rigs were unchanged at 153.

Baker Hughes said the total rig count is now up 273, or 57%, over this time last year.

With oil prices up about 39% so far this year to about $US104 a barrel after soaring 55% in 2021, the total rig count has grown for a record 23 months.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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