Gold Plunges on Rising Yields, Global Demand Worries Sink Crude, Cold Start to March Lifts Natural Gas

Commodity markets finished mixed last week with a spike in U.S. Treasury yields helping gold post its worst week since August, bearish U.S. manufacturing data stoking concerns over global crude oil demand growth and natural gas strengthening with one of the coldest starts to March that we’ve seen in many years.

Gold

Gold futures fell over 1 percent last week to close at its lowest level since January 24, while producing its biggest decline since the week-ending August 17. The catalysts were a sharp rise in U.S. Treasury yields, a firmer U.S. Dollar and increased demand for risky assets.

For the week, April Comex gold settled at $1299.20, down $33.60 or -2.52%.

Treasury yields continued to rise on the back of a stronger-than-expected U.S. Gross Domestic Product report released on Thursday. This data prompted investors to book some profits in gold as it increased the possibility of at least one rate hike by the Fed in 2019. Rising yields tend to be bearish for non-yielding gold bullion.

The jump in Treasury yields also made the U.S. Dollar a more attractive investment, which drove down foreign demand for dollar-denominated gold.

Stocks rose in response to the GDP data, and the hopes of a trade deal between the United States and China. Gains were tempered a bit by weak ISM Manufacturing PMI data, but were still strong enough to drive down demand for safe-haven gold.

Crude Oil

U.S. West Texas Intermediate crude oil traders, responded differently to the weak factory data. Sellers hit the market hard as the bearish data stoked concerns over global crude oil demand growth. The ISM Manufacturing Purchasing Managers’ Index in February sank to its lowest level since November 2016, and was below the forecast.

For the week, April WTI crude oil futures settled at $55.80, down $1.46 or -2.55%.

The U.S. report came on the heels of China’s February factory activity, which fell for a third month as the world’s second-largest economy continued to struggle with weak export orders. South Korea’s exports contracted at their steepest pace in nearly three years in February as demand from China cooled further.

Natural Gas

Natural gas futures rose to their highest level since January 25 on heavy short-covering ahead of the week-end. Cold weather the first week of March has been expected for some time. However, it’s the March 11-15 period that is making short-sellers nervous. Going into the week-end, models for this time period have been leaning to the colder side.

For the week, April natural gas settled at $2.859, up $0.120 or +4.38%.

Bespoke Weather Services said, “The overall theme remains that we see one of the coldest starts to March that we’ve seen in many years, but the shift in tropical forcing patterns means that we see changes by the middle of March that are likely to bring a milder pattern to much of the nation.”

“There is also risk that models are showing too much cold at the surface out in the 11-15 day time frame, given the changes already seen in the upper level pattern at that point in time.”

“While we have often observed models to be too fast on calling pattern changes, we do believe that, from here, risk of GWDD losses is higher compared to risk of moving colder.”