Gold hits fresh record high amid strong haven buying
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Rising geopolitical tensions pushed energy markets higher. This also stoked haven demand in the precious metal market.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Ahead Today
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Market Commentary
Gold hit a fresh record high before paring gains, amid ongoing haven demand. The uncertain geopolitical backdrop has stoked investor demand in the precious metal in recent weeks. Tensions in the Middle East remain elevated. Israel is honing its attack on Iran after a drone penetrated Israel’s defence systems and exploded near the private home of Prime Minister Benjamin Netanyahu. Uncertainty surrounding the outcome of the US election remains high, with polls indicating the race for the White House is too close to call. Money managers continue to increase their net-long positions, while investors have added to exchange traded funds holdings in recent session. Gold gave back some of these gains late in the session as Fed officials call for a less aggressive rate cutting cycle. The Fed’s Neel Kashkari repeated that he favours reducing rates at a slower pace in coming quarters, and Lorie Logan held to her call for proceeding at a careful pace.
Base metals ended the session lower as the stronger USD weighed on investor appetite. However, prices were up in early trading following moves by Chinese banks to invigorate spending. The one-year loan prime rate was lowered to 3.1% from 3.35%, while the five-year LPR was reduced to 3.6%. The cuts came after the PBoC outlined steps last month to encourage households and companies to borrow money. The recent weakness in economic activity hasn’t stopped China’s strong impetus to stockpile key commodities. Three factors – capacity, economics and resource security – will drive China’s restocking demand. Commodities with strategic importance (such as for the energy transition) will see continued robust imports, while China will likely be an opportunistic buyer of oversupplied commodities. Copper remains a strategic material of which China has scarce domestic reserves, so their import levels are likely to remain elevated and relatively inelastic to prices. That said, the current levels of China’s stockpiles do not seem excessive, which should ease concerns of a sudden drop in import demand over the medium term.
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Crude oil gained as tensions in the Middle East rose. The Hezbollah drone that exploded next to Benjamin Netanyahu’s home has raised the stakes in the Israel-Hamas war. Israel has already vowed to retaliate against Iran for a missile attack in early October. The latest moves threaten to spark an even fiercer response, raising the risk of oil supply disruptions in the region. The move by Chinese banks to cut benchmark rates also boosted sentiment. Saudi Aramco CEO Amin Nasser said he is bullish at that nation’s consumption. That’s in contrast to the IEA comments by Executive Director Dr Faith Birol who said that global oil demand will continue to weaken due to headwinds in China and the rapid uptake of EVs.
Global gas prices rallied amid the renewed risks of supply disruptions. European benchmark futures gained more than 2% as traders brace for a possible escalation in hostilities between Israel and Hamas. Chevron said its projects in Israel are working as normal. In addition, a cold snap is expected to take hold of the region at the end of the month. North Asian LNG prices were also higher as Egypt looks to precure more LNG.?
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Chart of the Day
Gold investors continue to add to their net long positions has the uncertain economic/political backdrop drive haven demand
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