Gold, Silver and Crude Oil Report, GLD, SLV, USO

By Paul A. Ebeling, Jnr.,

Shutterstock photo


SPDR Gold Trust ( ETF ), NYSE:GLD, iShares Silver Trust ( ETF ), NYSE:SLV, United States Oil Fund LP ( ETF )

The Overall Fundamentals

Commodities rebounded last week as the nuclear crisis in Japan eased. The fighting in Libya continues, and I believe that the market has priced in a period of political and economic disruption in the MENA region with significant amount of oil and energy capacity suspended for some time to come.

In my talks with players they are focusing on macro-economic events. Data released last week in the USA were mixed, though we saw a drop in home sales, the market liked that the Country's job market has been improving, durable goods orders disappointed a bit, and falls in both existing home sales and new home sales data indicated consumer spending remains dampened.

In the EuroZone, concerns about sovereign and debt problems in the European periphery re-emerged. Portugal's PM resigned after the Parliament rejected his fiscal-consolidation plan, raising bets of Portugal's request for a rescue from the EFSF.

Concerns about the stability of the banking and financial systems in the EU peripheral countries heightened by rating agencies' downgrades. Fitch Ratings and S&P downgraded Portugal's credit ratings to A- from A+ and BBB from A- respectively while Moody's cut senior debt and deposit ratings of 30 smaller banks in Spain as the agency doubted government's support to the lenders.

The EU Summit held on March 24-25 note what most expected, i.e. the capital structure and interest rates for the new ESM have been confirmed. The ESM will have a total subscribed capital of EUR700B, of which EUR80B will be in the form of paid-up capital provided by Eurozone member states being phased in from July 2013 in 5 equal annual installments. Details on the new EFSF will not be finalized until June. No new updates were provided regarding financial assistance for Ireland or Portugal.

As we know from our experience, Gold benefits as sovereign crisis in the Eurozone heightens, and we here at Live Trading News believe part of the Gold-buying last week reflected those concerns. But, strength in the precious Yellow metal was, for the most part, driven by geo-political tensions in the MENA region and uncertainty about the impacts on Japan from the recent disasters.

Despite the rise to a new record price mark, Gold reversed some, and finished the week +0.72% higher.

Profit-taking is the big reason for the price action, but the "Hawkish" comments from ECB members offset some upward pressures on Gold.

The ECB may move to increase interest rates in April. If its tightening measures are aggressive enough to generate a move in short-term real rates, Gold may see some negativity on the move.

Gold and Silver

The precious metals complex rally was broad based but Gold apparently under performed Silver and PGMs although it hit a new all-time high of 1448.6 oz Thursday.

After ending Y 2010 on a Strong note, Gold's price has under performed from the beginning of this year as improvement in risk appetite drove investors to stock markets.

The precious Yellow metal gathered up momentum again in late January and has remained Strong since then.

Though geo-political tensions in the MENA region have bolstered Gold recently, expectations that inflation in the USA is bottoming have been supporting the metal's price action

The US Fed IMO, thought it is pledged to pay close attention to the evolution of inflation and inflation expectations, has no intention to alter its accommodative monetary stance because it believes that the recent upward pressures from commodities is transitory.

Negative real interest rates encourage Gold purchases as players look to diversify their cash holdings.

Negative real rates are not only seen in the USD but also the GBP, and EUR.

With the ECB talking about starting to increase interest rates, Gold may be forced down. But, we believe that the impact may not as big as some fear if the Euro is boosted by widening in USD-EUR yield differentials.

Silver was the best performer in the complex with the benchmark contract jumping to a fresh 31 yr high at 38.18 oz Thursday, before settling at 37.05, +5.70%.

Silver's price outlook is volatile because the fundamentals are somewhat weak.

PGMs rebounded after falling during the past 2 weeks. The outlook there is based largely on the auto sector and its response to Japan's recovery.

Industry experts that I have read now estimate Global automakers may lose production of about 600K vehicles by the end of this month, as it is believed that it make take several months before inventories and other parts of the industry are back to normal in Japan.

Crude Oil

Crude Oil rallied last week with WTI Crude Oil prices for delivery in May gaining +3.49%, and equivalent Brent Crude prices marked a +1.46% on the week. Consolidation of Brent Crude prices helped narrow the WTI-Brent spread.

WTI Crude Oil rallied with prices approaching its 28 month high of 106.95 Thursday. The strength was driven by Strong Oil demand in China and the USA. I believe that now the relations are strained between the USA and its most important Arab ally, Saudi Arabia, and that also worked to boost Crude Oil prices.

It was reported that in a telephone conversation with Saudi's King Abdullah, US President Barack Obama asked for 'political process as the only way to peacefully address the legitimate grievances of Bahrainis and to lead to a Bahrain that is stable, just, more unified and responsive to its people'.

Previously Saudi ignored the USA's request and sent troops into Bahrain and the King remained angry with USA's abandonment of President Hosni Mubarak during the Egyptian protests.

Saudi Arabia is a major Crude Oil supplier to the USA, and according to the DOE/EIA, the Kingdom exported an average of 1M bpd of petroleum liquids to the US, accounting for 9% of total US petroleum imports, in Y 2009.

During that period, Saudi Arabia ranked 4th after Canada, Mexico, and Venezuela as a petroleum exporter to the USA. If US-Saudi relations deteriorates more, it is possible that the Kingdom's motivation to calm markets by raising production will be curtailed.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Commodities
Referenced Stocks: ETF

More from International Business Times


International Business Times

International Business Times

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by