Gold Gains As Geopolitical Tensions Intensify, Crude Recovery At Risk
London (July 17) Traders Turn To Precious Metals As Tensions Flare
The ongoing Ukrainian unrest has regained attention this week following reports from US officials suggesting Russia has supplied insurgents with weapons in Eastern Ukraine. The failure to comply with requests to assist a de-escalation of the conflict has prompted the EU and US to enact another round of sanctions on Russia. This time targeting some of the country’s largest state-owned enterprises.
The prospect of sanctions on some of Russia’s key commodity exports is noteworthy, given the nation is the world’s largest energy exporter, as well as the largest supplier of palladium. However, at this stage it seems unlikely that Europe would cut off its largest supplier, yet speculation alone over potential disruptions could act as a source of short-term support for crude and natural gas, as well as palladium.
Similarly, a flare-up in tensions between Israel and Hamas over the past two days has likely bolstered safe-haven demand for the precious metals. After a suffering a steep sell-off earlier in the week, gold and silver have recovered roughly half a percent thus far in Asian trading. If the conflict between the two forces were to escalate, the precious metals could be afforded further gains.
Crude Bounces Back As Inventories Drop
Following several weeks of a narrow focus by crude traders on the prospect of Middle East supply disruptions, traders may have turned their gaze back to the US. The DOE’s Weekly Petroleum Status report released on Wednesday painted a bullish picture of the US oil market. Most notably; stockpiles at Cushing, the delivery point for WTI, dropped to their lowest since 2008. Additionally, refinery utilization picked up to the highest rate since 2005. Taken together the report suggests strengthening demand for crude oil in the world’s largest consumer of the commodity.
A light US docket ahead leaves few cues for crude traders, which in turn may do little to inspire a further recovery. This leaves WTI in a slightly precarious position, where traders may utilize the bounce as an opportunity to exit long positions (which remain near record highs). However, over the near term if incoming US economic data continues to improve, speculation over burgeoning demand for crude could help lead WTI higher.