Weekly Recap – Dollar-Denominated Commodities Pressured by Strengthening Greenback

In addition to the strengthening U.S. Dollar, gold was also pushed to near its lowest level since the end of December last week as economic data from China improved enough to relax concerns over a global economic slowdown. U.S. West Texas Intermediate crude oil and international-benchmark Brent crude oil futures looked tired all week, which could be the first sign of a top-heavy market. Natural gas futures finished the week sharply lower after a government storage report showed a slightly larger than expected build.
James Hyerczyk
Gold, Crude Oil, Natural Gas

Below average volume and the strengthening U.S. Dollar contributed to the relatively high volatility in a pair of dollar-denominated commodity markets – gold and crude oil, while natural gas was pressured by a nearly triple-digit storage build with more to follow over the near-term. Steady-to-better U.S. economic data helped underpin the dollar, but it was a weaker Euro which fueled a spike to the upside by the U.S. Dollar Index.

Comex Gold

Gold futures were pressured all week, following through to the downside following a steep sell-off on April 11. Besides the strengthening U.S. Dollar, which made dollar-denominated gold a less-desirable asset, technical pressure also helped accelerate losses after the precious metal turned lower for the year.

Last week, June Comex gold settled at $1276.00, down $19.20 or -1.48%.

In addition to the strengthening U.S. Dollar, gold was also pushed to near its lowest level since the end of December last week as economic data from China improved enough to relax concerns over a global economic slowdown. Dampening fears of a potential global recession prompted traders to lift protective hedges in gold and put their money to work in higher-yielding assets.

Among the reports driving down demand for safe-haven gold were better-than-expected China GDP data and improvements in the U.S. trade balance and retail sales. Additionally, less-bullish data from the Euro Zone on Thursday drove down the Euro, while pushing up the U.S. Dollar Index. This helped reduce demand for dollar-denominated gold.

Crude Oil

U.S. West Texas Intermediate crude oil and international-benchmark Brent crude oil futures looked tired all week, which could be the first sign of a top-heavy market. Although it reached a new 5-month high last week, WTI crude oil struggled with the $64.70 are for a third time in a week. However, it did continue to find support at $63.48. Brent crude oil continued to bump up against a key technical area at $71.77

Last week, June WTI crude oil settled at $64.07, up $0.05 or +0.08% and June Brent crude oil finished at $71.97, up $0.42 or +0.58%.

Prices continued to be underpinned by the OPEC-led production cuts and U.S. sanctions against Iran and Venezuela, but also received support from news of lower exports from Saudi Arabia and an unexpected drawdown in U.S. inventories. Most of the news last week was bullish, but traders seemed reluctant to buy. Technical factors may have contributed to the price action, but most traders believe uncertainty over whether the U.S. will increase pressure on Iran and worries that the deal between OPEC and its allies including Russia will come to end in June, limited gains.

Natural Gas

We’ve hit the time of the year when bullish traders will have to wait for the return of hot temperatures in order to generate any meaningful upside action.

Natural gas futures finished the week sharply lower after a government storage report showed a slightly larger than expected build. Favorable weather conditions and improving production are expected to continue to weigh on prices until cooling season demand returns although technical indicators show the market may have entered oversold territory.

For the week, June natural gas settled at $2.535, down $0.169 or -6.25%.

On Thursday, the U.S. Energy Information Administration reported that U.S. supplies of natural gas rose by 92 billion cubic feet for the week-ended April 12. Analysts were looking for an increase of 90 billion cubic feet for the latest week. In 2018, the EIA reported a 34 BCF withdrawal, and the five-year average injection is 21 Bcf. Total stocks now stand at 1.247 trillion cubic feet, down 57 billion cubic feet from a year ago and 414 billion below the five-year average, the government said.

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