Gold Jumps on Safe-Haven Demand, Drop in Saudi Exports Boosts Crude, Weather Woes Weigh on Natural Gas

Gold hit its highest level since June 20 on Wednesday, helped by weaker equity prices which increased its appeal as a safe-haven asset. Crude oil rallied on Wednesday, boosted by signs of tighter supplies from Saudi Arabia. After a promising opening to the new year, natural gas prices fell after new forecasts called for mild temperatures for the first half of January.
James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

The heightened volatility in the stock market also had an impact on the commodity markets and vice-versa. Gold prices were supported by safe-haven buying early in the session before giving back some of those gains. Crude oil was pressure by weaker-than-expected manufacturing data from China, the Euro Zone and the United States. Support for natural gas continued to erode due to expectations of weaker demand.

Gold Hits Multi-Month High

Gold hit its highest level since June 20 on Wednesday, helped by weaker equity prices which increased its appeal as a safe-haven asset. Actually, the early stock market sell-off drove down U.S. Treasury yields, making the dollar a less-desirable asset. This led to increased demand for dollar-denominated gold.

February Comex gold settled at $1284.10, up $2.80 or +0.22%.

Gold was also supported by expectations of lower interest rates in 2019. The case for lower global interest rates was boosted by a series of weaker than expected manufacturing reports. China’s Markit Manufacturing Purchasing Managers’ Index (PMI) for December dipped to 49.7 from 50.2 in November. Euro Zone Manufacturing PMI remained at its lowest level since February 2016, according to IHS Markit. The data also showed confidence about the future hit a fresh six-year low. In the U.S., the IHS Markit Manufacturing PMI slipped to a 15-month low in December.

Coming into the new year, gold is being supported by expectations that the U.S. Federal Reserve will take a pause in its rate increases.

Crude Oil Jumps on Drop in Saudi Exports

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rallied on Wednesday, boosted by signs of tighter supplies from Saudi Arabia that may be enough to offset record output in the United States and Russia as well as the weak PMI reports.

February WTI crude oil settled at $46.54, up $1.13 or +2.43% and March Brent crude oil closed at $54.91, up $1.11 or +2.02%.

Last month, the Saudis vowed to cut exports to the United States in an effort to drive down U.S. supply. According to tanker-tracking data from Bloomberg, Saudi exports in December fell by about half a million barrels per day to stand at 7.253 million bpd. Additionally, figures from ClipperData have shown that loadings of Saudi crude on ships bound for the United States have been falling in recent months.

Natural Gas Prices Retreat on Bearish January Forecasts

After a promising opening to the new year, natural gas prices fell after new forecasts called for mild temperatures for the first half of January.

March natural gas settled at $2.829, down $0.022 or -0.78%.

Traders ignored the new forecast from NatGasWeather which called for a cold front to sweep across the Great Lakes and Northeast, choosing instead to focus on reports of above normal temperatures that were expected to “quickly spread back across a majority of the country” Friday and into the weekend.

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