Gold speculators get back on the horse

Friday’s positive US jobs report and the on-going turmoil in the MENA region conspired to push crude oil values to fresh, 30-month highs early this morning, which, in turn, reignited intense speculative activity in the precious and base metals sector as the new trading week got underway.

A string of news stories relating to aggravating or emergent violence and tensions anywhere from Libya to Yemen, from Syria to Nigeria, and to the Ivory Coast sent investors piling into black gold and helped them push the WTI benchmark to above the $108.75 per barrel price level (and to the $119.40 mark for Europe’s benchmark Brent crude). A rescheduling of Nigerian elections has placed speculators on edge today, as they watch Africa’s largest oil producer grapple with political uncertainty.

Perceptions that Japan, which remains the world’s third largest economy, might also use higher amounts of oil as it begins to recover from last month’s natural disaster helped oil prices gain additional speculative traction as well this morning. Notwithstanding the frenzy in the oil pits, market analysts are of the opinion that values might soon retreat to levels some $10 lower than what is manifest this morning. Kuwait Petroleum’s CEO said today that crude’s current price is “worrying” and too elevated, and that his country would rather see the commodity trading in the $90 to $100 range.

Such level-headed and fundamentals-based talk was evidently lost on oil speculators as they…pumped up their net-long bets according to CFTC data that came in late last week. The gambling crowd hiked the current net-length structure of the oil market to just below its all-time high that was on display circa three weeks ago. The net length being held by so-called non-commercial traders in the commodity amounted to 9.31% of the total open interest in oil, and that represents a fresh record high.

At this juncture, the situation in the oil trading pits might only witness a reversal of fortune if and when any number of the currently-in-turmoil countries mentioned above return to normalized conditions. Chief on that list would be Libya and the departure of The Colonel. Oil speculators are on alert for any potential development of such a nature, amid reports that Mr. G’s sons are offering the possibility of his abdication.

There are also other reports that a Libyan envoy is currently in Europe, also offering certain conciliatory signals from the embattled Libyan strongman. Any such positive resolutions to the situation could bring about a swift “adjustment” in the price of oil and also help erase some of the inflationary apprehensions that its price tag has recently brought about. Most central bankers have tendered the opinion that the current spike in commodity prices is but a transitory phenomenon and should not be interpreted as damaging to the global economy. The type of inflationary expectations that commodity traders are signaling at this moment however, are clearly not ones that would concur with those assessments.

The speculative situation was largely similar in gold and silver at the start of today’s trading action. Despite the better-than-anticipated US jobs market report from the Commerce Department – an additional development that might send the Fed towards the “EXIT” door sooner rather than later in the current year, the CFTC data continues to reveal that the bets in the yellow and the white metal are positioning themselves towards the probability of higher price ground being reached. Such price territory was indeed trekked upon, this very morning, in silver; it reached a fresh, 31-year pinnacle at $38.57 on the back of heavy buying by funds.

Spot gold trading opened with a $9.90 per ounce gain in New York on Monday, as the hefty additions to crude oil values helped the entire commodities complex reach for higher ground. Support in bullion is currently seen as residing near the $1,419 and $1,404 price-points, while resistance overhead remains in place near $1,444 and the $1,452 levels. Crude oil will provide much of this week’s lead for the gold trade (and a crowded trade it is, but perhaps nowhere near as sardine can-like as is silver).

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