By Barani Krishnan – One week on, things haven’t gotten better for oil bulls.

Longs in gold, meanwhile, are just at a loss.

A “mini” 3-day rally in gold came to an abrupt end Friday despite surprisingly supportive European Central Bank policy.

And while the yellow metal eked out a modest weekly gain, there are few clues on what it could do through the Federal Reserve’s September policy meeting scheduled for Tuesday and Wednesday, before Chairman Jay Powell’s news conference.

While U.S. interest rates themselves won’t be any news next week — with the Fed looking most comfortable with its zero to 0.25% holding rate — Chair Powell will likely revisit the central bank’s mission of higher-for-longer inflation. If he does that, the Dollar Index should — and I mean, logically, should — trade at the lower 92 levels, giving gold a substantial bid.

But little of what the dollar has done over the past month has been logical. Therefore, gold longs will be going into the new week wary, even if a dovish (friendly) Fed and Chair await them. In fact, ECB Chairwoman Christine Lagarde already gave gold bugs an early gift on Friday by refusing to suppress inflation in Europe. That popped the euro and briefly hurt the greenback. Yet, the Dollar Index retained its tough 93-handle on the back of friendly U.S. CPI, giving little reprieve to gold.

TD Securities was among the cheerleaders for gold as it published a note Friday on prospects for the haven going into the meeting of the Fed’s Federal Open Market Committee.

“We expect next week’s FOMC to clear the second hurdle for yellow metal bulls — officials should send a dovish signal through the wording on QE, the extension of the dot plot through 2023, and the Chairman’s press conference,” analysts at the Canadian bank-backed brokerage said.

“Over time, this will open up the door to an extension in the average maturity of Treasury purchases, which should further support precious metals. In this context, we argue that the trading set-up in precious metals is ripe for a breakout higher.”

I’ll take that with more than a few grains of salt, considering what TD Securities also said of gold’s likely benefit after the ECB’s refusal to tamp down eurozone inflation.

“The ECB’s decision to brush off the exchange rate appreciation has crossed off an important hurdle for gold bugs,” the same analysts wrote.

“Signaled by the revised inflation forecast, the bank showed no real concern on the currency pass-through to inflation forecasts, which our FX strategy colleagues argue will allow the market to return to its old impulses and biases: investors will return their focus to the weak USD narrative, on an opportunistic basis,” they added.

Really? The Dollar Index gained almost 0.7% for the just-ended week. Meanwhile, spot gold, which tracks real-time trades in bullion, was up just 0.5% on the week.

More interestingly, it was the second straight week of gains for the greenback indicator, which rose just over 1% in all since the week ended Aug 21. The bullion barometer, on the other hand, lost a net 0.8% in the same span.

In oil, crude bears rejoiced for a second week in a row as higher-than-anticipated crude stockpiles rattled investors already concerned about fuel demand with the end of the peak U.S. driving season.

Bloomberg reports that the Organization of Petroleum Exporting Countries and its allies will convene online in the coming week, to reflect on whether the coronavirus has thwarted their best efforts to keep the market afloat.

After reviving crude prices from an unprecedented collapse over the spring, the greater OPEC+ alliance — steered by Saudi Arabia and assisted by non-producer members led by Russia — is seeing the recovery for oil stall and fuel demand falter as the deadly pandemic surges once again. Prices slipped below $40 a barrel in the just-ended week, the first time since June.

On Thursday, the Saudis and the Russians will chair a monitoring meeting to assess whether the vast production cuts, which they started easing in August, are still staving off an oil glut. New signs of exporters reneging on the deal aren’t helping.

And OPEC+ data shows Russia to be among the cheaters. If that’s not enough of a dilemma for the Saudis, renegade Libyan general Khalifa Haftar has committed to ending the North African country’s blockade on oil, meaning even more supply — up to one million barrels per day — could hit the market in due course. Haftar’s move might be good for Libya’s civil liberty. But certainly not great news for OPEC and crude right now.

Energy Weekly Review

Oil prices finished with a second week of losses that left the market down more than 10% over the past fortnight.

A sluggish Friday on Wall Street added to the anemic performance in oil. The S&P 500, the leading indicator of U.S. stocks, spent much of the day in negative territory before ending flat, after the previous week’s drop of more than 2%.

New York-traded West Texas Intermediate, the key indicator for U.S. crude price, settled the day up 3 cents at $37.33 per barrel before showing a final post-settlement trade of $37.38. For the week though, WTi lost 6.1%, extending last week’s drop of 7.5%.

Ed Moya, analyst at New York’s online trading platform OANDA, said WTI seemed destined to trade at around the mid-$30s for now as the crude market continued to work its way towards balance.

“Much attention is falling on the lack of American road-fuel demand, but in the short-term that could change as some companies are starting to urge more people to stop working from home,” Moya said in a note.

“The next few months will be extremely uncertain for the demand outlook as no one knows how the winter wave of the coronavirus will trigger scattered lockdowns throughout the country.”

London-traded Brent crude, the global benchmark for oil, closed the New York trading session down 23 cents, or 0.6.%, at $39.83. It did a final post-settlement trade of $39.80. Brent lost 6.6% for the week, adding to the previous week’s drop of 5.3%.

The price slide came after the Energy Information Administration reported a weekly crude inventory build of 2 million barrels, above the 1.3-million forecast by analysts. It was the first ever rise in crude inventories since mid-July. In six previous weeks, the EIA had reported a total crude drawdowns of more than 38 million barrels.

Aside from the weekly crude build, the EIA also reported that refinery utilization of oil fell 5% for a second straight week. That raised concerns about demand for fuel after the end of the peak U.S. summer driving season.

On the bearish side as well, the EIA raised output estimates for U.S. crude by 300,000 barrels per day to 10 million bpd, accounting for the redeployment of production platforms on the Gulf Coast of Mexico that were preemptively shut during last month’s Hurricane Laura.

Oil market economics were clouded over the past four months by euphoria more than statistics attesting to business reopenings from COVID-19 lockdowns.

Tepid U.S. jobs recovery since July — despite unemployment returning to single digit — and a resurgent dollar that’s anything but good for commodities had capped crude in the low $40s.

The floor finally came off the market last week after OPEC kingpin Saudi Arabia cut the selling price of its oil, ostensibly to preserve or widen its market share. The Saudi move came weeks after OPEC+ said it was winding back production cuts observed since May.

The return of the Dollar Index to its bullish 93-handle and a stocks rout on Wall Street completed a perfect storm for crude longs

Energy Calendar Ahead

Monday, Sept 14

Private Cushing stockpile estimates

Tuesday, Sept 15

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Sept 16

EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories

Thursday, Sept 17

EIA weekly report on natural gas storage

Friday, Sept 18

Baker Hughes weekly survey on U.S. oil rigs

Precious Metals Review

Gold prices ended the week up but its three-day “mini rally” — which saw the yellow metal rise less than $10 daily on the average — came to an abrupt end Friday as volatility struck financial markets again in the absence of clear drivers.

From the stocks on Wall Street to crude oil on NYMEX, prices either gyrated or see-sawed in a range as upbeat U.S. Consumer Price Index data was offset by the continued standoff in Congress over a new coronavirus relief bill.

U.S. gold for December delivery settled down $16.40, or 0.8%, at $1947.9 per ounce on New York’s Comex. It did a final post-settlement trade of 1,948.25. In the three prior days to Friday, December gold had risen by just over $27.

The spot price of gold, which reflects real-time trades in bullion, settled at $1,940.36, showing a decline of $5.82, or 0.3%.

For the week though, December gold was up 0.7% while bullion showed a gain of 0.5%.

Notwithstanding that, gold remains way below Comex’s record highs of nearly $2,090 and bullion’s peak of above 2,073, both hit on Aug 7.

Charts show that spot gold needs to get to at least $1,968 to recover some of the frenetic momentum that took it to last month’s record highs.

“The market’s reaction to $1,968 will give guidance on the further course of action,” said gold chartist Sunil Kumar Dixit. “But gold actually needs to close above $1,973 and cross above $1,993 to resume the bullish momentum.”

“On the downside, breaking below $1,935 and a close below $1,920 will prompt it to attempt the $1,900 handle. Further weakness can increase the chances of a lower low that may reach $1,850-$1,800.”

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