Commodities may once again attract the attention of investors, as on the one hand the strong upward trend in oil prices seems to be continuing, and on the other hand the luster of gold is fading. The current week could be pivotal for one of these markets.
Oil prices seem to be extending their declines for the third consecutive session. The reason may be fears that OPEC+ will increase oil production. The group will meet on Thursday, March 4 and may discuss bringing 1.5 million barrels of oil per day back to the market, Reuters reported. Investors also seemed pessimistic because of the fact that Saudi Arabia's voluntary production cut of 1 million barrels per day ends this month. The mood was also worsened by weak manufacturing data in China, where factory activity grew at the slowest pace in nine months, which could translate into lower demand for the country's oil. Also of note, the WHO warned on Monday of a rising number of viral infections worldwide, which happened last week for the first time in nearly two months. Investors are now awaiting weekly inventory reports from the API later in the day and from the EIA on Wednesday.
Gold cheapest since June
The price of gold fell to nearly $1,700 per ounce on Tuesday, its lowest level since mid-June. Potentially higher yields are putting downward pressure on gold, while a stronger dollar may also be contributing to a drop in bullion prices.
The rise in bond yields is also cushioning the rise in inflation expectations in the United States. Inflation expectations for the next five years rose to the highest level since 2011. - according to Bloomberg data. Investors appear to be cashing out of the largest gold ETF. Shares in the SPDR Gold Trust fell Monday to their lowest level since May 2020.
Declarations of help from the ECB
In the currency market, we may observe a correction in the US dollar, which seems to be turning back from the high levels of oversold in this market. As a result, the euro weakened towards $1.20, trading at its weakest level since November, when weak economic data showed that German retail sales fell in January for the second consecutive month, and at a faster-than-expected pace. In addition, German and Spanish unemployment rose in February amid ongoing restrictions. On Monday, European Central Bank President Christine Lagarde said the central bank will help ensure businesses and families have access to the financing they need to survive. The ECB chief assured that financing conditions would not be tightened prematurely. The bank has also signaled a willingness to counter rising bond yields and has not even ruled out cutting interest rates. These, in turn, may be arguments depreciating the quotations of the common currency.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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