Oil and gold prices rose with support from the uncertainty surrounding the US presidential elections, in addition to Washington’s plan to enhance the strategic reserve of crude oil.
Oil is rising
Oil prices rose – today, Tuesday – after declining in the previous session, supported by a US plan to enhance the strategic reserve of crude oil, in light of broader concerns about weak demand growth in the future.
Brent crude futures increased 36 cents, or 0.5%, to $71.78 per barrel, at the time of writing this report, while US West Texas Intermediate crude rose 0.49% to 32 cents to $67.70.
Futures contracts for the two standard crudes fell by 6% yesterday, Monday, to reach their lowest levels since the first of this October, after the retaliatory strike launched by Israel on Iran at the weekend did not affect Tehran’s oil infrastructure.
While there appear to be no indications that the two countries may escalate the conflict after the attack, investors’ concerns have emerged about weak growth in global oil demand for this year and next.
The United States said yesterday, Monday, that it seeks to buy up to 3 million barrels of oil for the strategic reserve for delivery until May of next year, in a purchase that will leave the government little money to buy other quantities until lawmakers agree to make more money available.
Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, said: “While the outlook for the situation in the Middle East remains worrying, the market expects a temporary lull in the retaliatory strikes between Israel and Iran.”
He added that “the American plan to enhance the strategic reserve provided some support to the market,” but he expected a downward trend in the future with the approach of the peak season of demand for kerosene in the winter in the Northern Hemisphere and with the continued slowdown in demand in China.
Last Saturday, dozens of Israeli warplanes carried out three waves of strikes against missile manufacturing facilities and other sites near Tehran and in western Iran, in the latest exchange of bombing between the two rivals in the Middle East.
The Israeli strike targeted more military targets, which allayed fears that Israel might attack Iranian nuclear facilities or oil infrastructure.
But tension is still high, and Iranian Foreign Ministry spokesman Ismail Baghaei said yesterday, Monday, that Iran “will use all available tools” to respond to the Israeli attack.
The United States warned Iran in the UN Security Council of “serious consequences” if it carried out any further hostile actions against Israel or American military personnel in the Middle East.
In the United States, a preliminary poll conducted by Reuters yesterday suggested that crude oil and gasoline stocks would rise last week, while distillate stocks were expected to decline.
The American Petroleum Institute is scheduled to issue its weekly report today, Tuesday, while the Energy Information Administration – the statistical arm of the US Department of Energy – will issue its report tomorrow, Wednesday.
Gold goes up
Gold prices hovered near record high levels today, Tuesday, supported by the uncertainty surrounding the US presidential elections, while investors await important economic data to obtain indications of the interest path that the Federal Reserve (the US central bank) will follow.
Gold rose in instant transactions by 0.16% to $2,746.82 per ounce, which is close to its highest record level of $2,758.37 per ounce recorded last Wednesday.
US gold futures increased 0.26% to $2,763.10.
Reuters quoted IG market strategist Yip Jun Rong as saying: “The period leading up to the upcoming US elections may continue to provide momentum for gold’s position as a hedging tool against market turmoil, supported by the temporary decline in the US dollar and Treasury bond yields last night.”
He added: “While strong economic data may support more patience in the Federal Reserve’s monetary easing process, we may expect gold prices to continue to receive support as interest rate expectations stabilize around a smaller level of 25 basis points in the coming months.” Next November.
There are only 8 days left until the Federal Reserve decides on interest rates, and it is expected that a series of important data and events will affect the path that the US central bank will follow.
Important events
Data expected this week includes:
- Job openings data in the United States scheduled for release today.
- Employment data is expected to be released tomorrow, Wednesday.
- Personal consumption expenditures in the US on Thursday.
- Friday’s payroll report.
- After that will come the elections scheduled for November 5.
According to the CME Group’s Fed Watch tool, markets estimate the probability of a 25 basis point interest rate cut by the Federal Reserve at about 98%.
Low interest rates reduce the opportunity cost of holding gold, which is also seen as a safe-haven asset during times of economic and political turmoil.
As for other precious metals:
- Silver rose in spot transactions by 0.87% to $33.97 per ounce.
- Platinum increased 1.42% to $1,049.
