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Gold Price Is Getting Crushed as Dollar Reaches New 2018 Highs

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Gold’s brisk selloff deepened Thursday, as investors put higher interest rates on the front burner following two days of testimony from Federal Reserve Chairman Jerome Powell.

Gold Price Levels

According to Bloomberg data, the price of gold bottomed at $1,212.70 a troy ounce on Thursday, extending a three-month selloff that has shaved 11% from the yellow metal’s value. Gold peaked slightly above $1,360 in March and April before plunging over the next three months.

Bullion is trading at its lowest level in over a year, with technical charts putting the next major support level around $1,200-$1,202 an ounce.

Silver, which often trades in the direction of gold, was off more than 2% Thursday to a low of $15.19 a troy ounce. The grey metal later recovered around $15.30 but was still down more than 12% from January’s settlement high of $17.61.

Dollar Rally Intensifies

A surging dollar has largely underpinned the massive exodus out of gold over the last three months. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of currencies, has gained nearly 7% compared to three months ago. DXY is up 3.6% for the year, more than offsetting its worst annual start in decades.

On Thursday, the dollar index rose more than half a percent to a high of 95.65, its best level of the year.

The dollar’s strength combined with Brexit woes triggered a fresh slide in the British pound, which fell on Thursday to its lowest since August.

The Canadian dollar declined sharply on tariff fears, sending the USD/CAD currency pair to its highest level of the month.

A stronger U.S. currency makes the purchase of gold and other commodities more costly for international buyers, which reduces their relative demand. On Wall Street, investors have shown a renewed penchant for stocks in anticipation of a strong earnings quarter.

Fed Chairman Jerome Powell on Thursday wrapped up his semiannual testimony before Congress where he fielded questions on the economy, protectionism and cryptocurrency. Although Powell didn’t strike an overly hawkish tone, he left little doubt about the central bank’s plan to raise short-term interest rates.

On Wednesday, Powell told lawmakers they can expect several years of economic growth under the current policy regime.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” Powell said in prepared remarks.

The central bank “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with the economic recovery, he added.

Federal Open Market Committee (FOMC) members will next meet July 31-Aug. 1 to set short-term interest rates. No change is expected before September.

Featured image courtesy of Shutterstock. 

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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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

Oil Prices and the Saudi Conundrum

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Crude prices fell on Monday after Saudi Arabia said it was prepared to ramp up production to compensate for the loss of Iranian oil exports. This runs somewhat contrary to Saudi’s recent threat to weaponize oil following the West’s response to the disappearance of Jamal Khashoggi.

Crude Prices Dip

Oil markets were down in early trading, with U.S. crude futures briefly falling below $79 a barrel. The West Texas Intermediate (WTI) benchmark has since recovered to around $79.74 a barrel, where it was down 0.2% compared with Friday’s close.

Brent crude, the international futures benchmark, declined by as much as 1.2% to trade at $68.27 a barrel. At press time, Brent was priced at $69.01 a barrel, down 0.2% from the previous sclose.

The dip in price comes after Saudi energy minister Khalid al-Falih told a Russian news agency that his country had no intention to implement an oil embargo on the West. Instead, the Saudis remain focused on ramping up production to offset the loss of Iranian crude following the resumption of U.S. sanctions on Tehran.

Weaponizing Oil

Despite al-Falihi’s reassurance, the Saudis have already threatened to use their abundance of crude to inflict economic damage on the West – something they have not done in 45 years. The threat was issued earlier this month amid suspicion that Riyadh was involved in the disappearance of Jamal Khashoggi, a journalist who was often critical of the kingdom’s policies. Riyadh have denied direct involvement in the disappearance and later claimed Khashoggi died following an altercation at a Saudi embassy in Istanbul, Turkey. This position has been met with skepticism in the West, with some U.S. lawmakers calling on the Trump administration to reconsider the nation’s economic ties with the kingdom. Meanwhile, Turkey has vowed to expose Saudi Arabia’s direct role in the disappearance and eventual death of Khashoggi.

Conceivably, Saudi Arabia’s plan to “weaponize oil” would involve limiting crude exports to Western nations, thereby creating a sharp spike in global prices. While this would create short-term gains for the Saudi government, which according to the International Monetary Fund (IMF) requires a per-barrel price of $85-$87 to balance its budget, the long-term consequences on the kingdom would be much more severe.

For starters, Saudi production is not as vital for the world economy as it was during the previous oil shock in the 1970s. In addition to Russia being the world’s largest oil producer, the United States has emerged as a key player in the energy equilibrium. According to some estimates, the shale boom has already made the U.S. the world’s largest energy producer. Domestically, the U.S. has also diversified into nuclear, natural gas and renewable energy, which means the world’s largest economy is less dependent on foreign crude. In 2017 alone, renewables accounted for 18% of all electricity in the United States thanks to a sharp drop in wind and solar costs.

As we’ve seen before, prohibitively high oil prices lead to innovations in other segments of the energy market, which ultimately work against Saudi Arabia. Although the kingdom is trying to pivot away from oil, the transition is likely to be slow and cumbersome. Crude is still very much the lifeblood of the Saudi economy and diversification away from it could expose a myriad of other issues, such as weak labor force mobilization and heavy dependence on a generous welfare state funded by abundant petrodollars.

Featured image courtesy of Shutterstock.

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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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

Oil Prices Drop amid Large U.S. Stockpile Accumulation, Saudi Backlash

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Oil prices extended losses on Wednesday after U.S. government data showed a bigger than expected rise in weekly crude inventories, possibly signaling a slowdown in demand for the world’s largest economy. Meanwhile, pressure on Saudi Arabia mounted as the kingdom launched an investigation into the disappearance and likely death of a prominent dissident.

Oil Prices Continue Lower

The West Texas Intermediate (WTI) benchmark for U.S. crude futures reached a session low of $69.63 a barrel on the New York Mercantile Exchange. It was last seen trading at $69.80 a barrel, down $2.12, or 3%.

Brent crude, the international futures benchmark, bottomed at $79.17 a barrel on London’s ICE futures exchange. The futures price was last down $1.75, or 2.2%, at $79.66 a barrel.

A rising U.S. dollar placed downward pressure on commodity markets, which are largely denominated in the greenback. The U.S. dollar index (DXY), which tracks the performance of USD against a basket of six rivals, rose 0.4% to 95.41.

Stockpiles Surge

U.S. commercial crude inventories rose by 6.5 million barrels in the week ended Oct. 12, nearly three times higher than expected, according to the Energy Information Administration (EIA). The official figures contradict earlier data by the American Petroleum Institute (API), which showed a 2.1 million-barrels drop during the same week.

The U.S. imported an average of 7.6 million barrels of crude last week, data showed.

Despite the recent spike in commercial stockpiles, the market for commercial crude is expected to remain tight as the U.S. ramps up sanctions against Iran. A sharp drop in Iranian exports could propel crude prices higher in the medium term, with some analysts eyeing a return to $100 a barrel next year.

Saudi in the Spotlight

Saudi Arabia has faced a global backlash following the disappearance of Jamal Khashoggi, who was last spotted entering a Saudi consulate in Istanbul, Turkey. Although Saudi authorities have denied any involvement – sentiment that was shared by U.S. President Donald Trump – Turkish and American press have reported gory details of Khashoggi’s death.

Turkish officials have reportedly obtained audio recordings that prove Khashoggi was beaten, killed and dismembered at the consulate.

The Saudis have vowed to retaliate against Western critics who link Riyadh to the killing, including business leaders who are considering cutting ties to the kingdom. According to analysts, the oil-rich kingdom could slash crude exports by 500,000 barrels a day should the U.S. or any other nation pursue sanctions.

Featured image courtesy of Shutterstock.

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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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Commodities

Gold Prices Approach Three-Month Highs as Fundamental Risks Weigh

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The price of gold continued higher on Tuesday, as the combination of rising interest rates, looming U.S. midterm elections lifted demand for safe havens. However, upside could be capped by rebounding stock prices as U.S. markets opened sharply higher. The yellow metal has rebounded 4% over the past eight days.

Precious Metals Rise

Precious metals were higher across the board, with gold futures resuming their climb above $1,230.00. December gold, the most actively traded futures contract, rose $4.90, or 0.4%, to $1,235.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

Silver futures followed a similar trajectory, rising 10 cents, or 0.7%, to $14.83 a troy ounce, the highest since Aug. 28.

The U.S. dollar, which often trades inversely with precious metals, declined for a fifth time in six sessions. The dollar index fell 0.2% to 94.86, a new three-week low.

Fundamentals in Focus

Rising bond yields have put a damper on risk appetite in global stocks, helping to engineer one of the biggest declines of the year. In China, equity markets are down a whopping 23% this year, with the latest selloff only exacerbating a volatile climate for investors. The benchmark Shanghai Composite Index fell a further 0.9% on Tuesday.

China is at the center of a global trade controversy after U.S. President Donald Trump invoked heavy trade tariffs on the country. Last month, the Trump administration implemented additional duties of 10% on $200 billion of Chinese goods. Although Beijing has responded, its massive surplus with the U.S. means it won’t be able to match Trump’s tariffs dollar-for-dollar. The International Monetary Fund (IMF) expects trade hostilities will contribute to slower economic growth in the U.S., Chinese and global economies next year.

Europe is also in the spotlight as investors await the details of Italy’s forthcoming budget. Rome’s new government on Tuesday submitted its budget to the European Union for review. The plan reportedly pushes Italy’s deficit to 2.4% of GDP, which is well above the EU’s guidelines and sets the stage for further clashes with Brussels.

Meanwhile, U.K. Prime Minister Theresa May has called for political unity after securing the backing of cabinet for her Brexit negotiating strategy. May is expected to press EU leaders to unblock stalled negotiations after European lawmakers ditched plans to publish a draft declaration on the bloc’s future trade deal with the United Kingdom.

Wall Street Opens Higher

U.S. stock markets were trading higher after the opening bell on Tuesday, with technology shares leading the rally. The large-cap S&P 500 Index was up 0.7%, with all 11 primary sectors reporting gains. The tech-heavy Nasdaq Composite Index shot up 1.1%. Dow industrials rose more than 200 points.

U.S. equities faltered Monday afternoon after a back-and-forth session. The major indexes are coming off their worst week since February with losses ranging from 3.7% to 4.2%. The selloff triggered a massive spike in volatility, with the CBOE VIX reaching six-month highs.

Featured image courtesy of Shutterstock.

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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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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