Haven demand helps push gold prices higher
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Rising geopolitical tensions continue to weigh on energy markets while assets have also found some support. The stronger USD halted the rally in metals.
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
Crude oil pushed higher last week amid rising geopolitical tensions. The Russia-Ukraine war has intensified following months of little movement from both sides. The use of long-range missiles has raised tension, including Russia using a new kind of ballistic missile that typically carries nuclear warheads, rising concerns Russia was applying new rules of engagement around the use of nuclear weapons. The recent exchanges indicate the war has entered a new and dangerous phase, raising concerns of disruptions to supplies. At the same time, Iran said it will increase its nuclear fuel making capacity after it was censured by the UN’s International Atomic Energy Agency. The moves were supported by a broader risk-on tone across markets, with equities gaining across most regions.
European gas rallied last week as the escalation in the Russia-Ukraine threatens to disrupt supplies. The US moved to sanction the Russian bank Gazprombank, the last major Russian financial institution exempt from penalties. This closed a loophole that had been kept open since the start of the conflict because it was a key lender in the energy market. The sanctions increase the risk of Russian natural gas being cut off to the handful of central European nations that are still receiving supplies via pipelines. Austria had some of its supply cut, after OMV stopped paying Gazprom for gas over an arbitration dispute. Top energy officials from the country have also warned it is up to the company to resolve the issues. North Asian LNG prices jumped to their highest level this year amid rising competition from Europe. Unusually cold temperatures and subdued renewables output have seen an increasing number of cargoes being diverted to Europe.
Gold recorded its biggest weekly gain since March, as the escalating geopolitical tension boosted its appeal as a haven asset. The precious metal pushed back through USD2,700/oz, after Russia’s missile attack. The gains last week were also supported by dovish commentary from central bankers. The Federal Reserve’s Austan Goolsbee said he sees interest rates moving a fair bit lower over the next year. Not even a stronger USD has curbed investor demand. The DXY is up more than 7% since the start of October and now at an all-time high for the year. Gold tends to be negatively correlated with the USD.
The stronger USD weighed on the base metals market. Copper ended the week slightly lower, while the rest of the complex was mixed. Nickel gained after French miner Eramet SA warned that Indonesia is squeezing supplies of nickel ore to protect smaller local miners. The country has become the world’s largest nickel producer, supported by international investment, as it looks to capitalise on the strong demand for the EV battery metal. However, in recent years supply has grown so much it has swamped the market. Aluminium ended the week lower, despite China removing an export rebate that could be a significant disruption to global trade. In fact, there are concerns that some Chinese producers may front-load cargoes to get the last out of the tax benefit before the policy starts next month.?
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Chart of the Day
Gas withdrawals from Europe storage facilities in recent months have been stronger than the during the energy crisis winter of 2020/21. With risks to supply rising in recent weeks, this is likely continue ahead of the heating season. A winter with high prices looks on the cards.
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