Gold succumbs to continued dollar and yield strength
Gold spent most of the week managing to find a geopolitically-related bid to shield it from the negative consequences of sharply higher US Treasury yields and dollar. In the end, however, the market buckled under the weight of deteriorating market sentiment driven by a 32-basis point jump in US ten-year yields to a 12-year high at 3.75% and a 2% rise in the Bloomberg Dollar Index to a record high (since 1997).
Gold and the other semi-investment metals like silver and platinum will likely to continue to remain under pressure until the market reach peak hawkishness, potentially not before 4% is reached in 10-year yields and the dollar squeezes out any remaining short positions. Whether the turning point will be reached before yearend remains to be seen. By continuing to raise interest rates while also raising expectations for lower growth and rising unemployment, the FOMC is signaling a recession is a price worth paying for getting inflation under control. We maintain a long held view the market, just like the FOMC, may end up being too optimistic in their belief inflation will return to the sub 3% level currently being priced in via the swap market.
Resistance has moved to $1690 while the break below $1654 on Friday could see the market target the 50% retracement of the 2018 to 2020 rally at $1618.
Copper and crude oil trade lower responding to growth worries
Growth and demand dependent commodities from copper and aluminum to crude oil all slumped with the focus fixed on the mentioned macro-economic developments with supportive supply issues, especially in crude oil, for now being pushed aside. Some signs of weakness, however, was seen in copper where inventories of copper monitored by the London Metal Exchange rose steeply for five straight days while the recent tightness in spot market showed signs of easing. The High-Grade copper futures traded in New York slumped by 4% on Friday to $3.33 per pound, a break that potentially could see the metal having another go at challenging key support around $3.14 per pound, the July low and 61.8% retracement of the 2020 to 2022 rally.
Crude oil meanwhile headed lower after spending most of the week confined to a relative tight range with the Powell versus Putin battle (demand versus supply) not having a clear winner until Friday when both Brent and WTI dropped as the FOMC driven slump in risk appetite and growth angst was dialed up a notch as the dollar and yields continued to surge higher. A difficult and potentially volatile quarter awaits with multiple and contradictory uncertainties having their say in the direction. While the risk to growth is being priced in, the market has left it to another day to worry about the supply-reducing impact of an EU embargo on Russian oil and fuel as well as a part reversal of the US selling 180 million barrels from its Strategic Reserves.