Commodities Corner: The Halo Effect
PUBLISHED
2023-03-19
Content
Gold soared and US dollar Treasuries did well again as those global fears in financial markets just wouldn’t go away by week’s close on Friday in New York.
Silver also had a solid week and iron ore rose but oil slumped for another week and coal and LNG followed suit, especially on Friday.
Regardless of the UBS-Credit Suisse outcome, gold will enjoy another up day today after it rose to the highest level in 11 months on Friday as safe-haven buying accelerated in the wake of last week's banking turmoil and fears of more to come.
Comex Gold for April delivery ended up $US70 to US$1,993.50 an ounce at the close on Friday night (US time), the highest since April last year. Comex gold for June delivery closed up US$50.50 to US$1,990.20, the highest since August, 2020.
There’s every chance gold will top $US2,000 an ounce today if there’s no easing in the tremors rippling through global financial markets.
Gold’s gains in the past seven trading sessions have been all about fear levels in the markets, especially among banks.
Comex gold prices have surged from $US1,815 an ounce on March 8 (the day before Silicon Valley Bank failed) and Friday’s final $US1,993. That’s a big rise of $US178 an ounce or just under 10%.
Including the afterhours trading, gold rose 6.4% last week and nearly 9% for the year to date (because of last Friday’s sharp 3.7% rise).
Two-year Treasury bonds (which are supposed to react more quickly to Fed thinking) slid a massive 76 points last week to end at just over 3.8%. The yield was just over 5% two weeks ago - the size of the fall tells us just how big the flight to quality has been.
Comex silver also had a good day, rising nearly 5% over the week after closing at $US22.75 an ounce. That took the gain for the week to more than 10%.
Bond yields were lower early as investors bid up treasuries, with the yield on the US$10-year note last seen down 15 basis points to 3.43% at the close.
However, the US dollar eased and the ICE dollar index was last seen down 0.53 points to 103.86. The Aussie dollar regained and remained just above 67 US cents at Friday’s close.
Gold "remains supported amid continued banking sector concerns, a softer dollar and speculation about a peak in US rates followed by rate cuts later this year. Investors and traders in futures and ETFs who were heavy sellers during the February correction have returned on the buy side", Saxo Bank noted on Friday.
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Meanwhile it was another damaging week for global energy markets and a year after the gains driven by Russia’s invasion of Ukraine, oil especially is looking very different.
The week saw the Swiss National Bank come to the rescue of Credit Suisse with a $US60 billion plus deal and 11 big US banks effectively bail out First Republic to the tune of $US30 billion.
Credit Suisse may go the round of merger talks this weekend, but for energy markets the big signal is the looming threat of a slowdown in growth and demand.
An economic slowdown means less oil consumption, explaining the excess weakness in crude prices this week (even though the International Energy Agency got all bullish about the impact on oil demand from the re-opening of in and outbound tourism into China).
More important for China was the easing in the reserve ratio for the country’s banks late Friday night by the People’s Bank of China in an obvious move to try and boost liquidity in the financial system and economy generally.
Brent lost more than 11% over the week and 4% on Friday, ending at $US72.97 a barrel while US West Texas Intermediate crude fell nearly 13% to $US66.74 after Friday’s 3% slide.
The number of oil rigs operating in the US fell for another week last week - this time by just one as gas rig numbers leapt.
Data compiled by energy-services firm Baker Hughes showed the total number of rigs operating across the US oil industry was 589, still above the 524 of a year earlier.
Gas rig numbers jumped by nine to 162 and boosted oil and gas rig numbers by 8 to 754, still above the 663 total a year ago.
On Wednesday, the US Energy Information Administration reported that commercial crude stockpiles in the US, excluding the strategic petroleum reserve, rose by 1.6 million barrels through the week ended March 10 to 480.1 million barrels.
"Risks remain to the downside amid the worsening banking crisis," with the recent events adding to uncertainty about the US Federal Reserve's next move, Australia and New Zealand Banking Group said in a note on Friday.
"With all this uncertainty, we expect (the Organization of the Petroleum Exporting Countries) to keep the production cuts announced in late 2022 in place," according to the note. "As macro issues subside, we expect crude oil prices to push above $100 per barrel in the second half of 2023.”
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Iron ore again topped $US130 a tonne on Friday on the SGX in Singapore, for a gain of around $US5 per tonne over the volatile week’s trading that included a 2023 high of $US132.18 on Wednesday.
But Australian premium coking coal fell last week, closing around $US320 per tonne on the SGX, down almost 10% from the $US350 a tonne of the previous Friday.
JKM LNG prices in Asia tumbled under $US14 a million British Thermal Units to $US13.55 per million British Thermal units.
Newcastle 6,000 kilo calorie thermal coal fell more than 9% to $US173 per tonne for April deliveries and $US175 for March delivery.