Home

Commodities Corner: A Two-Horse Race

PUBLISHED

2023-03-26

Content

Gold and oil, oil and gold, - no matter which way you look at commodity markets at the moment, those two continue to dominate sentiment.

Gold ended easier on Friday after spending time above the $US2,000 mark for second day as investors continue to look for safe-haven assets and investors fretted about banks, especially European.

Comex gold was down around $US15 on the day after hitting a high of $US2,006.50 earlier in the session.

After seeing its best gains in three years last week, gold in fact tested the $US2,000 an ounce level a few times last week.

April Comex gold futures were trading at $US1,983an ounce at the close, down around 0.6% for the session.

Comex silver rose 2.5% over the week after closing at $US23.405 an ounce while Comex copper ended at $US4.0755 a pound, down 1.2% for the day but up 4.5% for the week.

The drop came ever as European bank shares fell amid concerns over their health, though most of the fall was reversed in US trading.

"European banks ... are down 5% led by Deutsche Bank as CDS prices have getting repriced higher and AT1 bond yields sit at 12% far exceeding the return on equity,” Peter Garnry, head of equity strategy at Saxo Bank, noted. (AT1 bonds are the type that were wiped out in the Credit Suisse takeover.)

"This means that the AT1 capital market is at this point not a viable funding source for banks and thus common equity must be raised over time which will be dilutive for shareholders. The banking crisis is far from over and the impact on credit conditions and the economy will likely be felt over the next six months,” he wrote.

Other safe havens also firmed, including the US dollar and US treasuries. The ICE US dollar index was last seen up 0.57 points to 103.12. The Aussie dollar was around 66.46 US cents at Friday’s end of week.

On Friday, the 10-year US Treasury yield fell to 3.38% from 3.42% late Thursday. It was above 4% earlier this month.

For the two-year Treasury, the yield eased to 3.77% from 3.83% late Thursday and from more than 5% at the start of this month.

Iron ore prices fell in Singapore - down 10% to $US117.90 from $US130.79 a tonne for 62% Fe fines.

Meanwhile oil prices ended up on the week - Brent crude rose 2.77% for the week, closing at $US74.79 while US West Texas Intermediate crude rose 3.5% to $US69.26 a barrel.

In a surprise, the number of oil rigs operating in the US increased by four last week - the first weekly rise in a month.

Baker Hughes data showed the count rising to 593 last week. A year earlier, the US had 531 oil rigs in operation.

Oil and gas rigs in the US rose by four to 758, with the counts for gas and miscellaneous rigs remaining unchanged at 162 and three, respectively.

In the same period of 2022, there were 137 gas rigs and two miscellaneous rigs in operation. Overall, there were 670 rigs operating in the US last year.

On Wednesday, the Energy Information Administration reported that commercial crude stockpiles in the US, excluding the strategic petroleum reserve, rose by 1.1 million barrels through the week ended last Friday to 481.2 million barrels.

The forecast was for a rise of 1.7 million barrels, and another nail in the optimists’ outlook.

And the Biden Administration surprised by hinting that it may not look to boost its strategic petroleum reserve that was used to push more oil onto markets last year to drive down prices - which happened.

That will remove buying support from the market just when it wants it most, although you’d be silly to expect a big buyer to signal its intention to start making purchases.

It’s very possible the Biden Administration will announce in a few months’ time that it has soaked up enough oil to substantially replenish the reserve.

Author