Keep an Eye on these High-Octane MarketsAmidst a precariously framed U.S.-Iran confrontation backdrop, Brent crude closed lower overnight as traders lessened their odds for an immediate US-Iran escalation in this forever smouldering hot spot.
Given Sunday’s “hawkishly” tinged news flow, traders we’re less inclined to take profits during the Asia and London markets yesterday, but after a President Trump tweet that suggested unless there is a blatant attack on a US hard asset, a military strike was unlikely which immediately downgraded the chances of an imminent confrontation.
“All of these countries should be protecting their ships on what has always been a dangerous journey. We don’t even need to be there in that the U.S. has just become (by far) the largest producer of Energy anywhere in the world!
After WTI logged its best weekly gain in more than two years on Friday, traders were finally inclined to book some profits after Trump’s tweet. Still, tension simmer and since the outlook remains mud-caked the market is holding on to a defensively bullish bid ahead of this week’s API inventory report after last week’s data suggested US demand was rising as inventories contracted more than expected.
I think traders are content to play fringes on short term mean reversion; although I got a bit concerned being short yesterday even although an escalation is very unlikely, you can never rule out an Iranian tactical military mistake that sends the Saudi-Israel- US Neocon axis into full throttle.
While the market continues to trade near the boiling point I can’t help but feel we are nearing a breaking point. Short term influences aside, make no mistake in the Fog of War, the markets are pivoting to two main events which will likely plot the course of oil prices in the second half of the year, OPEC in Vienna and G-20 in Osaka
There is a high level of certainty around the outcome from the OPEC meeting, but the G-20 remains the wild card in the deck.
There are so many bullish Gold catalysts in play; the list of positive narratives would likely fill an encyclopaedia.
We just witnessed the Gold market already high-powered engine receiving a shot of Nitrous at the COMEX open sending prices surging through $1,1425. And despite the low liquidity conditions at the open, I suspect these types of moves will become the norm rather than the exception as Gold continues to attract more and more demand by the hour.
If lower US bond yields have historically signalled an economic downturn, then the absolute weight of global negative yielding bonds must be viewed as the harbinger of economic doom and gloom, which is perhaps the most precise and most convincing signal enveloping Gold markets currently. But with a significant rotation out of USD intensifying post FOMC, it further adds to the Glimmering Gold market appeal.
The global capital market’s mood is shaky due to the fear of the unknowns and it’s this uncertainty that will continue to provide the jet fuel for an already high-octane Gold market.
So, with lower US yields providing a significant floor for Gold in US dollar terms, Gold is getting more than a second look it’s in flat out demand, and we haven’t even reached a feverish pitch.
Our end of day Asia Wrap Jun 24
“Gold markets love uncertainty, and with more than enough of that to go around with G-20 looming and Middle East headline risk simmering Gold remains in vogue. But after this morning flurry of activity that ran into plenty of sellers above $1410, demand has waffled touch. But as a significant rotation out of USD intensifies, it could open the door to a test of $1,1425 as Gold continues to attract a whole host of cross-asset buying above $1400”
This article was written by Stephen Innes, Managing Partner at Vanguard Markets LLC