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Precious Metals & Energy - Weekly Review and Calendar Ahead

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·6 min read
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By Barani Krishnan

Investing.com - Bizarre doesn't quite capture it.

Gold, the default save haven for financial and political troubles, fell on a day when U.S. President Donald Trump declared coronavirus-positive.

The dollar rallied instead after Trump’s Covid-19 infection was known. The dollar: A currency that has gone from strength-to-strength since early August - despite a gaping U.S. fiscal deficit from pandemic-related spending, record recession, thousands of business closures, historic unemployment and other economic ills.

No one's denying that we are in America's most extraordinary hour since 9/11. But even so, logic should prevail. What happened with gold and the dollar this week defies most parameters of financial and haven logic.

Ed Moya, analyst at OANDA in New York, gives us a sense of what else could be at stake after an utterly chaotic week for both politics and markets.

“Trump's positive COVID test brings about a whole new wave of uncertainty on how he will govern over the next couple weeks,” Moya wrote. “Are all his campaigning and debates at risk of not happening? And does this hurt the chances of a stimulus deal getting done before November?”

That stimulus is super-important - not just to help millions of unemployed Americans but also to get gold rallying again.

There was a time when missiles fired over the Middle East or tested by North Korea could easily get gold up by $20 an ounce. Not now.

The Federal Reserve’s quantitative easing that began in the aftermath of the 2008/09 financial crisis has largely changed the attitude of investors in gold. With QE, there’s easy — or lazy — money to be made. Without it, investors of all stripes don’t seem interested, including those in gold.

Thus, Trump testing positive for the coronavirus this week went by as just another event for haven gold.

In some ways, it was reminiscent of the yellow metal’s behavior in March, when it acted like a risk instrument as the U.S. Covid-19 outbreak became the tsunami that capsized all asset boats. Gold did not crash with equities on Friday - it actually settled well off the day’s lows - but still played second fiddle to the dollar, which was also king during the March episode. Gold, it appears, will stay anemic without another stimulus.

The need for another stimulus was emphasized on Saturday by a tweet from Trump’s own @realdonaltrump handle that read: “OUR GREAT USA WANTS&NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!”

Whether Trump tweeted that from his hospital bed remains to be seen, given the conflicting media reports over the weekend about his condition. For what it’s worth, the president has allowed his Twitter account to be used in the past by others - presumably White House aides and members of his family. Proof of this were the tweets that emerged from his account in real-time while he was on stage debating challenger Joe Biden on Tuesday. While Trump did post a video of himself from hospital on Saturday, he said the "real test" of his health will be known in a couple of days.


But back to gold, the reason it got to record highs of nearly $2,090 in August - from a seven-month low of $1,458 in March - was due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and its iterations passed by the U.S. Congress in the first quarter. With the $3 trillion from that stimulus having dried up by the second quarter, more relief is needed, and gold bulls have been waiting in the wings since for the ‘ka-ching’ sound of the registers.

But a new stimulus package has been too contentious to agree on ahead of the November 3 presidential election.

Republicans aligned with Trump and Democrats led by House Speaker Nancy Pelosi have wrangled over the past three months on a successive package to the CARES.

The stalemate has been over the size of the relief. Meanwhile, thousands of Americans, particularly those in the aviation sector, risk losing their jobs without further aid.

Democrats, on their part, have their own version of a stimulus called the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. The HEROES was originally proposed at $3 trillion HEROES before the Democrats cut it to $2.2 trillion.

Trump, who is fighting for a second term of office, has accused Pelosi of playing political football over the issue. Pelosi retorted that any deal should be to the advantage of Americans and not for Trump’s political expediency.

The two sides are expected to continue talks in the coming week.

On the oil front, U.S. crude lost 8% on the week, falling a second week in a row, for a decline that wiped out all of the 10% it gained a fortnight back.

Investors in oil, anxiously watching the recent rise in U.S. and European caseloads of the virus, were also hit on Friday by a dismal U.S. jobs report for September. The threat of rising crude production out of Libya, was another factor weighing on the market since last week.

The Labor Department’s monthly non-farm payrolls report showed that the United States gained just 661,000 jobs in September, less than half of the 1.5 million in August, as recovery in employment from the coronavirus slowed.

In Libya, oil production rose to around 300,000 barrels per day after the restart of another oilfield in the country, creating a new headache for fellow OPEC members trying to rebalance the market while demand is still weak.

U.S. crude prices lost 6% for September while closing the third quarter little changed.

Precious Metals Review

U.S. gold for December delivery last traded at $1,904.00 per ounce on Friday. It officially settled the session at $1,907.60 on New York’s Comex, down 8.70, or 0.5% on the day, after hitting a session low of $1,895.20. For the week, December gold rose 2.2%.

Spot gold, which reflects real-time trades in bullion, was down $7.52, or 0.4%, at $1,898.30, after a session low at $1,889.93. It finished the week up 2.1%.

Before Friday’s slide, gold returned to the key $1,900 on Thursday as U.S. House Speaker Nancy Pelosi said she was in talks with Treasury Secretary Steven Mnuchin for a new coronavirus relief bill although “distance” remained between them on the negotiations.

Energy Weekly Review

New York-traded West Texas Intermediate, the key indicator for U.S. crude prices, last traded at $36.97 on Friday. It officially finished the session at $37.05 per barrel, down $1.67, or 4.3%, on the day. The session low of $36.63 marked a 3-½ month bottom.

For the week, WTI fell 8%, extending the previous week’s decline of 2.1%.

London-traded Brent crude, the global benchmark for oil, last traded at $39.19. It officially settled the session down $1.66, or 4%, at $39.27. Earlier on Friday, Brent hit a session low of $38.80, marking a bottom since mid-June.

For the week, Brent lost 6.3%, extending the previous week’s decline of 2.9%.

Energy Calendar Ahead

Monday, Oct 5

Private Cushing stockpile estimates

Tuesday, Oct 6

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Oct 7

EIA weekly report on crude stockpiles

EIA weekly report on gasoline stockpiles

EIA weekly report on distillates inventories

Thursday, Oct 8

EIA weekly report on natural gas storage

Friday, Oct 9

Baker Hughes weekly survey on U.S. oil rigs

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