Gold jumps higher amid rising inflation expectations

Markets finished the week higher, as inflationary pressure reverberated across markets. Concerns about supply side issues kept commodities well bid.

Gold recorded its biggest weekly gain in more than six months, following this week’s inflation report in the US. The spectre of higher entrenched inflation saw investor demand surge. Yet spot gold opened Friday’s session under pressure, as benchmark 10y Treasuries traded above 1.5%. A weaker USD, following the drop in US consumer sentiment, helped pare those losses to end the session higher.

The weaker USD also helped boost investor appetite across the wider metals complex, with base metals ending higher. Aluminium led the gains on new threats to Chinese supply from energy and pollution controls. Russian producer Rusal warned that China’s push to decarbonise could boost its reliance on recycled metal. Recent supply shortages have depleted inventories, with available stock in LME warehouses falling to the lowest level since 2005.

Iron ore prices edged up as fear of a collapse at China’s largest property developer, Evergrande, eased. Chinese state-owned media published a series of articles outlining possible measures to manage the issues at Evergrande and other real estate developers, late last week. China Iron & Steel Association estimates the daily run rate for steel output is around 2.34m tonnes, which translates to a monthly total of 73m tonnes. If this ends up being October’s official output, it would be the lowest since 2017.

Crude oil prices weakened on Friday amid ongoing concerns of US inventory releases. The White House has been debating how to tackle higher inflation, with some officials calling for the strategic reserve to be tapped, or halting US exports. In California, gasoline hit USD4.65/gallon, just two cents from its all-time record high set in 2012. WTI pared some of the losses late in the session after White House Press Secretary, Jen Psaki, declined to say whether the President would release oil from the SPR.

European gas prices were steady, as traders watch Gazprom flows. The Russian gas producer said it is fulfilling its plan to boost stockpiles in Europe and that transit through Ukraine will be above contracted volumes this year. However, it declined to specify how much this would be. Russia also said it would meet supply obligations, even as the refugee build-up on the border between Belarus and Poland worsened. The pipelines in Belarus are owned by Gazprom, lessening the risk of the government shutting off supplies amid an escalation of political tensions.

North Asia LNG prices rose, as higher European prices met supply side issues in Asia. Maintenance is likely to reduce production in Australia, Norway and Malaysia. Shell’s Prelude LNG in Australia hasn’t loaded export cargo since 22?October.

China coal prices were weaker on Friday, as its domestic output rose to a high of 12.05m tonnes last week, according to the NDRC. Forecasts of a colder than normal northern winter have stopped the rot in international markets. Coal futures from Newcastle port edged up to USD150/t amid hopes that China will boost imports over the coming winter.

Higher gas prices helped lift European carbon markets the most in a week since August. China carbon prices recovered some of the losses from earlier in the week during Friday’s session amid an increase in trading volumes.?Emissions allowances closed at CNY42.66/t.