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The Aftermath of the Qatar Ultimatum

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The ultimatum that Saudi Arabia and its allies gave to Qatar expired on Monday, and the leaders of the nations participating in the “diplomatic blockade” gathered in Cairo yesterday to discuss the answer by the Gulf state. Investors all over the world were watching carefully, as the event had the outside chance of a significant risk event, with the Irani-Saudi-Turkish power struggle being in the background of the chain of events. The crude oil and natural gas markets are in the forefront of the crisis as well, and the prices of those crucial commodities were closely following the events in the past few weeks.

Qatar Calls the Bluff?

As Qatar dismissed the demands of the Saudi alliance, the blockading nations faced a situation where they needed to show strength without triggering anything that they didn’t want in the first place. Yesterday they decided to “maintain the sanctions” but did not escalate the crisis for now, despite stating that they would take further steps in the appropriate time, and saying that Qatar’s answer lacked any substance whatsoever.

We would say that Qatar “won” this round by reading the signs well, as the superpowers verbally intervened, trying to calm tensions and avoid a regional conflict that could destabilize the energy complex and the whole Middle East. That might be the reason of this kind of pointless ultimatum that first seemed to be a “casus belli” for more drastic measures.

The Oil Price Tango of Saudi Arabia

The OPEC’s oil production cut, that was aimed to stabilize the energy segment is still in jeopardy, as Iran is one of the most crucial players in the deal, as the country is still in the ramp-up phase following the lift of the Western sanctions. On an interesting note, it was precisely Saudi-Arabia who launched a price war against the shale industry in 2016, driving crude prices down below $30 per barrel. Now the kingdom got an unexpected help from the global central banks, in the form of rising yields, as the leveraged players in the rising shale industry already started to curb their expansion as credit conditions started tightening.

What Happens Next?

Oil already staged a strong rally in the face of the risk-off shift of the last few days suggesting that investors are removing their worst case scenario bets that would be the collapse of the fragile OPEC deal. That said, we expect oil to remain rangebound in the coming months, as the supply situation is only partly determined by the OPEC, and the slightly shaky shale industry still gives a flexibilty to global production that was impossible in the previous decades. The 4-week production average of the US tells the story, as in the last couple of years the output

The 4-week production average of the US tells the story, as in the last couple of years the output remarkably followed the moves in the price of oil, while before that there was a very low correlation. That fact should cap the price of the crucial commodity and it is unlikely that we see the per barrel price go over $60 anytime soon, barring a full-blown default wave in the sector.

Who Will Rule the Middle East?

The more pressing issue for the world is the question of the precarious balance of the region that could turn upside down if oil and natural gas prices remain “lower for longer”. With the new leadership of Saudi Arabia, the strong but politically divided Turkey, and the recovering Iran all in for dominance, the Qatar crisis might be an important step towards a solution- for better or worse. But for now, the imminent threat of a major conflict seems to be low, and that could cause a sigh of relief across the globe.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 466 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Commodities

Gold Rush Continues as Bullion Tops $1,340 for the First Time Since April

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Gold’s relentless push higher continued on Tuesday, as the yellow metal topped $1,340.00 a troy ounce for the first time in over ten months.

Market Update

Gold for April delivery surged $18.40, or 1.4%, to $1,340.50 a troy ounce on the Comex division of the New York Mercantile Exchange where it was eyeing its highest settlement since Apr. 19, 2018. Bullion has gained in back-to-back sessions and three of the past four days.

The yellow metal has rallied 4.6% in 2019 and 12% since the fourth quarter began.

Silver futures also produced solid results on Tuesday. The March futures contract rallied 18 cents, or 1.2%, to $15.93 a troy ounce. That’s the highest in almost three weeks.

Precious metals are being propped up by a declining U.S. dollar, which is currently mired in a four-day slump. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of six peers, fell 0.2% to 96.70. Since peaking at two-month highs, the greenback has lost 0.4%.

Can’t Stop Gold: Yellow Metal Notches Ten-Month High Despite Improved Risk Sentiment

Markets Await Data Flow

A somber mood on Wall Street and in Europe may have also contributed to the rally on Tuesday as investors shifted their attention to macroeconomic data from key markets. The large-cap S&P 500 Index was trading flat by mid-morning. European markets were all lower. That being said, gold’s recent performance has been largely uncorrelated with stocks and other risk-on assets.

The Federal Reserve will release the minutes of its latest policy meeting on Wednesday. Central bankers voted to keep interest rates on hold last month and signaled dovish turn in their forward guidance. The prevailing view for now is that the Fed will not raise interest rates in 2019. Some analysts believe the central bank is more likely to cut rates before raising them again.

A steady stream of PMI data for European and U.S. markets are scheduled for the latter half of the week. On Thursday, the U.S. Department of Commerce will report on durable goods orders, a key proxy for factory demand.

Central-bank speeches from the Fed and European Central Bank will make headlines on Friday. In the same session, Germany will report on fourth-quarter GDP. The European Commission will also release its revised consumer inflation report for January.

Featured image courtesy of Shutterstock. Chart via Barchart.com.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 772 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Commodities

Can’t Stop Gold: Yellow Metal Notches Ten-Month High Despite Improved Risk Sentiment

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Gold prices rallied sharply on Monday, as the yellow metal shrugged off traditional headwinds including rising bond yields and improved risk appetite en route to fresh ten-month highs.

Price Update

Gold for April delivery climbed $7.70, or 0.6%, to $1,329.80 a troy ounce, its highest level since April on the New York Mercantile Exchange. The contract traded as high as $1,330.80 a troy ounce.

Bullion has been riding a wave of momentum since the fourth quarter began, as a worsening stock-market outlook and global trade tensions weighed on risk sentiment. Since the beginning of October, the yellow metal has rallied nearly 12%.

Silver has followed a similar trajectory as gold. On Monday, the grey metal edged up 5 cents, or 0.3%, to $15.79 a troy ounce. Silver futures peaked at seven-month highs last week.

The gold-silver ratio that is used by investors to determine when to buy and sell precious metals is moving in gold’s favor amid the recent wave of buying. As of Sunday, the ratio stood at 83.83. This basically means that 83.83 ounces of silver are needed to buy one ounce of gold.

Dollar Demand Ebbs

Gold’s ascent on Monday came as demand for the U.S. dollar continued to slide. Since peaking at near two-month highs, the dollar index (DXY) has declined in each of the past three sessions. On Monday, it was down a further 0.2% at 96.71.

The dollar bulls have been in the driver’s seat for the past two weeks, as global trade uncertainty and political turmoil in Europe weakened demand for competitor currencies. A synchronized slowdown in the global economy, particularly in Japan, China and the Eurozone, has also propped up the dollar relative to its peers.

Gold outperformed riskier assets during the fourth quarter and has retained its strength during the stock-market rebound of 2019. The dollar emerged as the haven asset of choice for investors fleeing global economic and political risks. With the U.S. and China making progress on a new trade agreement, stock traders have been able to breathe a collective sigh of relief. Read more: Stocks Surge on U.S.-China Trade Optimism; Dow Notches Eighth Consecutive Weekly Gain

The U.S. financial markets were closed on Monday for President’s Day. Despite their recent strong performance, stocks may struggle to keep the momentum alive as the S&P 500 Index approaches a key resistance level. The outlook on earnings has also deteriorated, presenting new complications for equity traders.

Additional insights: Does this Chart Spell Doom for the S&P 500 Index?

Featured image courtesy of Shutterstock. Chart via Barchart.com.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 772 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Commodities

Gold Prices Get a Boost from Tame Inflation Data

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Gold prices headed higher on Wednesday after government data showed the smallest annual increase in consumer inflation in well over a year, giving the Federal Reserve more reason to hold off on raising interest rates.

Precious Metals Rise

Gold for April delivery climbed $2.50, or 0.2%, to $1,316.50 a troy ounce on the Comex division of the New York Mercantile Exchange. Bullion peaked at $1,321.70 on Wednesday, its highest in nearly two weeks.

Silver futures peaked at $15.80 a troy ounce, a new weekly high. The March contract was last seen trading at $15.78 a troy ounce, having gained 9 cents, or 0.6%.

Precious metals have seen their gains evaporate over the past two weeks, as an ascendant U.S. dollar pressured commodity prices. Gold and silver appear to be stabilizing this week despite the greenback’s continued strength. The U.S. dollar index (DXY), which measures the performance of the greenback against a basket of six rivals, rose 0.3% to 96.99.

Risk of Inflation Has Diminished

U.S. consumer prices flat-lined in January for a third month in a row, as volatile oil prices kept inflation in check. The consumer price index (CPI) remained unchanged in January, the Department of Labor reported Wednesday, confounding expectations for a 0.1% increase. In annualized terms, CPI rose just 1.6%, the weakest in over a year.

Stripping away food and energy costs, the so-called core consumer price index nudged up 0.2% in January and 2.2% annually, official data showed.

Following a volatile fourth quarter that saw stock markets plunge and global economic risks escalate, the Federal Reserve last month stressed ‘patience’ in normalizing monetary policy. The January policy statement signaled a dramatic shift in guidance from last year, when central bankers voted to raise interest rates four times. According to Fed Fund futures prices, the central bank is more likely to cut interest rates before raising them again.

The latest batch of CPI data echoed recent comments by Fed Chair Jerome Powell, who said the risks of higher inflation have diminished. This comes despite strong labor market fundamentals and continued economic growth.

Featured image courtesy of Shutterstock. Chart via Barchart.com.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 772 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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