1/5/2024

Oil and gold: focus on non-farm

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Key points:

  • Oil prices rose on Friday after the release of minutes from the Federal Reserve meeting, which showed that inflation was under control.
  • Brent crude futures rose 0.4% to $77.91 a barrel, while U.S. West Texas Intermediate crude futures rose 0.6% to $72.62.
  • Gold fell on Friday as investors lowered expectations for a Federal Reserve rate cut.
  • A rise in the dollar and bond yields also contributed to the fall in gold prices.

Oil prices rebounded on Friday as investors cheered signs of easing inflation fears and the prospect of a potential visit to the Middle East by US Secretary of State Antony Blinken to try to de-escalate tensions between Israel and the Gaza Strip.

Brent crude futures rose 32 cents, or 0.4%, to $77.91 a barrel, while US West Texas Intermediate crude futures rose 43 cents, or 0.6%, to $72.62.

Both benchmark indexes, on track to end the first week of the year higher, have recouped nearly all their losses from Thursday, when prices tumbled in a volatile session after data showed a massive weekly build in gasoline inventories.

While the Fed’s meeting minutes gave no clear signal of when interest rate cuts might start, the discussions suggested a growing consensus that inflation is under control. However, concerns are mounting about the risks of “overly restrictive” monetary policy, which could hurt the economy.

Supply concerns have also been exacerbated by developments in the Middle East, where Israeli forces are reportedly planning a more focused approach in the north and further targeting of Hamas leaders in the south, according to the country’s defense minister.

“Tensions still remain in the Middle East, with Houthi rebels launching a naval drone in the Red Sea and the US launching an airstrike in Baghdad,”

– ING analysts said in a report on Friday.

U.S. Energy Information Administration data revealed that gasoline inventories last week recorded their highest weekly rise in over 30 years, raising concerns about oversupply and undermining the case for a swifter rate cut by the Federal Reserve.

Investors responded by paring back their expectations for a Fed rate cut, with CME’s FedWatch tool now showing a 65% chance of a rate cut by March, down from a 90% chance just a week ago.

Gold falls for the first time in four weeks

Gold prices fell for the first time in four weeks as investors reduced expectations for an early rate cut by the US Federal Reserve.

The yellow metal’s losses were exacerbated by a stronger dollar and rising bond yields, which made gold less attractive to investors. Meanwhile, traders were awaiting the release of key US jobs data, which could provide further clues about the direction of the economy and interest rates.

Spot gold was virtually unchanged at $2,042.89 an ounce, but it had fallen by about 0.9% over the week.

US gold futures also remained unchanged at $2,049.80.

“Gold fell this week as yields and the dollar recovered. This is because markets have been lowering expectations for a Fed rate cut since the start of the New Year.”

– said Ilya Spivak, head of global macroeconomics at Tastylive.

The dynamics of commodities will likely be affected by the latest US unemployment data, which shows the general state of the American economy.

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