Gold rose beyond the $1,800 per ounce target long eyed as a result of bulls on the commodity as concerns increase over the second wave of COVID-19 infections as well as increasing stimulus measures geared towards mitigating the economic effect of the pandemic. A number of analysts also predict that the safe-haven asset would attain record highs above $2,000 in the months to come as COVID-19 cases further increase. At 6:30 am today, the price stood at $1801.5.
U.S. gold futures on Comex had risen by $19.30, or 1.1%, at $1,800.50, after hitting an intraday high at $1,803.95. This was the highest reached by a benchmark Comex contract for gold since its all-time peak of $1,911.60 in September 2011. Spot gold also increased by $8.58, or 0.5% at $1,781.20, after a session high of $1,785.97. That was also the highest since its September 2011 record of $1,920.85.
Philip Streible, the chief market strategist at Blue Line Futures in Chicago noted, “I believe that with additional lockdowns happening globally that central banks will continue to support the market at any cost. This should result in the Fed’s balance sheet continuing to grow and in turn provide underlying support in the precious metals markets. Gold should continue to track higher with $1,900 by Labor Day, $2,000 by Thanksgiving.”
In the United States, around 40,000 new coronavirus cases are announced daily in the ongoing outbreak, and it is projected to grow to as much as 100,000 daily. Top U.S. pandemics expert, Anthony Fauci said that this could be the country’s fate without adequate social-distancing amongst other safety measures. Even worse is that some health officials believe that the cases could be as much as 10 times higher than the official count. China, India and New Zealand have also had higher caseloads lately.
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Another determinant of the increasing price of Gold, the U.S. Federal Reserve and Congress have also passed more than $3 trillion in stimulus to mitigate the negative impact of the pandemic on the economy.
Crude oil prices fall over lingering concerns on world’s largest consumer
Both International benchmarks for crude gained more than 2% yesterday.
Crude oil prices plummeted on Friday morning as the resurgence of COVID-19 picked up globally, especially in the world’s largest economy and consumer of crude oil (United States), dampened the optimism for strong demand in energy goods.
Brent crude futures lost 0.70% to trade at $42.84 a barrel at 4.30 am Nigerian local time, and the West Texas Intermediate also dropped 0.8%, to trade at $40.31 a barrel.
Quick fact: Both International benchmarks for crude oil gained more than 2% yesterday, triggered by positive macros coming from the U.S Job report and falling U.S. crude inventories. For the week, Brent crude is up 4.3% and WTI is up 5.6%.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, explained in detail the lingering concerns about the world’s largest consumer of crude oil. He said:
“The demand concerns continue to linger amid a rise in gasoline stockpiles as the number of confirmed coronavirus cases in the US climbed to an all-time high of more than 50,000 on Thursday.
“And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as Covid-19 cases rise remains the primary thorn in the oil bulls’ side.
“But worrisome for oil prices are the densely populated southern US states that have been ravaged by the virus and are among the US’s most weighty consumers of gasoline.
“With the latest state government health advisory imploring Sun Belt citizens to restrict movements coupled with the re-imposition of localised lockdowns, there is a detectible level of uncertainty in the oil market heading into what is traditionally one of the busiest driving weekend of the year, the July 4th celebration weekend.”
However, some oil traders and investors remain optimistic that the price of crude will maintain its bullish momentum in the midterm, as long as certain parameters are kept in place.
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“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.
“The recovery in gasoline demand will plateau until the U.S. economy improves,” it concluded.
OPEC production output now at lowest level in nearly 30 years
Production cuts from OPEC countries and other allies have helped to revive the price of Brent Crude.
The production output of the Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest level in nearly 30 years, due to production cuts after demand was heavily impacted by the COVID-19 pandemic. The last time oil production was cut to 22 million barrels a day was during the Gulf War in 1991.
Last month, OPEC cut production to 22.69 million barrels per day, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic.
OPEC leader, Saudi Arabia, has been compliant in its production cuts through the month of June. Back home, Nigeria has promised to do its parts in implementing total compliance with the cuts.
Production cuts from OPEC countries and other allies such as Russia (OPEC+) have helped to revive the price of Brent Crude to over $40 since May, compared to record lows in the month of April.
While the Gulf nations have implemented further cuts, Nigeria, Angola and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June.
Other members like Venezuela pumped only 340,000 barrels a day in June, even though they are exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession.
Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic.
Sharp drop in oil stockpiles boost Brent Crude
Brent crude is the leading global benchmark for Atlantic basin crude oil.
Brent Crude prices gained on Thursday’s early trading session, reversing previous losses recorded at Asia’s trading session. This was propelled by a sharp drop in oil stockpiles outweighing concerns that a spike in U.S. coronavirus infections and revived lockdown measures in California could stall recovery in fuel demand.
Brent crude (LCOc1) gained 0.57% to trade at $42.27 a barrel 10.37 am local time, after gaining 1.8% yesterday.
Brent crude is the leading global benchmark for Atlantic basin crude oil. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including that of Nigeria.
Chief Global Market Strategist at AxiCorp, Stephen Innes, spoke about the ultimatum the Saudis are giving other producers towards stabilizing crude oil price. He explained that “The price falls were further compounded by warnings from Saudi Energy Minister Prince Abdulaziz who, in no uncertain term, issued a stern ultimatum to OPEC+ laggards to comply with the cartel’s recent production agreement or face a price war. The Kingdom is not going to do the bulk of the heavy lifting while other member states are not 100% compliant.”
Jeffrey Halley of OANDO in a note to Reuters also explained that, “The drop in stockpiles, reports of oil moving out of floating storage, and strong manufacturing PMI data across the globe formed a constructive case for oil prices rising.”
“The overnight price action and EIA data have temporarily lifted the COVID-19 gloom that has capped oil prices all week,” he added.