In addition, the tightness continues to be felt across the refined product market where higher prices could see inflation climbing higher in the coming months, thereby supporting a higher for longer interest rate stance from the US Federal Reserve, and with that increase risk to growth and demand into 2024. On Friday the US and not least European diesel futures contract rose sharply to support a Brent bounce back above $90 after Russia announced plans to reduce diesel exports from its key western ports by one quarter this month amid, the mentioned seasonal refinery maintenance and in order to keep more fuel at home to suppress otherwise rising prices. The Europe based ICE Gasoil futures contract reached $131 per barrel, an eight month high, while the New York Ultra-light Sulphur Diesel contract traded above $138 per barrel.
From a technical perspective, Brent has been in a bullish uptrend since July and needs to hold support at $89 as a break may trigger long liquidation towards $87.5 from traders who bought the production cut extension news. However, the medium-term uptrend is still firm with trendline support near $85, potentially being the bottom of a new higher range supported by OPEC’s active management of supply. We do not join the $100 per barrel camp but will not rule out a relatively short period where Brent could trade above $90.
The direction of precious metals continues to be dictated by incoming US economic data, as it eventually will determine the direction the US Federal Reserve decides to go on rates. It was weaker than expected economic data that supported an end of the August rally as it lifted expectations of peak rates followed by lower rates in 2024, and in the process forced traders to cover short positions which had been established in response to dollar and bond yield strength.
The softness in US economic data did not last, and during the past week both manufacturing and services PMI showed strength, with the headline and the prices paid component beating expectations, thereby once again raising odds of a quarter-point Fed rate increase in November to more than 50%, and with that another delay to the timing of a precious metal supportive peak rate scenario.
The sharp turnaround in rate expectations helped send bond yields higher while reducing the number of expected 25-bps rate cuts next year from five to four. The dollar, however, remains one of gold traders' biggest sources of directional inspiration and this past week, the Bloomberg Dollar Index, which tracks a basket of 11 major currencies, reached a six-month high. The jump in crude oil prices following Saudi Arabia’s decision to extend its unilateral production cut until year end, has probably helped prevent an even deeper setback for gold as it not only raises inflation but also growth concerns.
At Saxo, we maintain a patiently bullish view on gold and with that also silver. We see the yellow metal eventually reaching a fresh record in the coming months. The timing for a fresh push to the upside, however, will remain very US economic data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen recently, we are likely to see continued choppy trade action.
Having found trendline resistance at $1947, gold has returned to test the 200-day moving average, currently at $1918 ahead of $1910, the 0.618 Fibonacci correction of the August rally. Overall, the metal is stuck in a narrowing range, currently between $1893 and $1942.