Gold investment: demand and storage push oil into negative territory! Golden torrent retreat! Beware of this!

International spot gold was at $1688.70 an ounce in Asian trading on Tuesday. Gold staged a mild pullback for the day, bouncing back from a steep drop to a low of $1,671.30 an ounce in the previous session to as high as $1,702.00 before retreating from that high.

Gold rose as high as $1701.90 an ounce after opening at $1683.38 in early trading, and dipped as low as $1670.89 to close at $1694.82, up $10.63, or 0.63 percent.

Meanwhile, COMEX gold futures for June ended up 0.7 percent at $1,711.20 an ounce, the first gain in four sessions, as investors turned their attention to the gold market following the collapse of WTI crude oil futures in May.

“Gold rallied on bets that the unprecedented global monetary stimulus will only increase,” said Edward Moya, senior market analyst at brokerage OANDA in Toronto. “after the historic collapse in the oil sector, this is a reminder to everyone that global economic activity is far from normal.”

Jim Wyckoff, senior analyst at Kitco.com, said gold has benefited from the sharp drop in oil prices. That is bullish from a safe-haven perspective, given the plunge in crude oil prices and the extreme anxiety in the market. But the fall in crude prices also suggests that, more broadly, the commodity complex may be under some pressure.

Uncertainty over the opening of near-frozen economies and the possibility of a global recession could also support gold in the longer term, commodities experts said. “The long-term outlook for gold remains bright given the current environment, but is likely to remain weak in the near term,” Craig Erlam, senior market analyst at Oanda, wrote in a daily note.

Strategists at td securities said they expect gold to hover around support before recovering. While risk appetite is also on the rise, interest in gold has increased as volatility has eased, with fund managers sharply increasing long positions in the metal. The market is also positioning gold in response to a weakening of the dollar, which has pushed gold prices to multi-year highs.

Michael McCarthy, chief strategist at brokerage CMC Markets, said: “reduced optimism about economic growth will be a big factor in the forecast for gold, but at this point it is not foreseen to materialise. This scenario may also need to be combined with the direction of the dollar, which has not moved much but is higher than where it was before.”

Ilya Spivak, currency strategist at Dailyfx, points out, “at this point, the market has been siphoned off into liquid or risky assets, with the dollar, yen, treasuries on one side and other assets on the other, including gold. So gold is going to be one of those assets that’s going to be liquidated just as investors are worried that the recession will be significant and the damage to the economy will be more lasting.”

In the oil market, few buyers came forward to buy crude for immediate delivery in the hard-hit new market, and U.S. crude oil prices turned negative for the first time in history on Monday: U.S. WTI crude for may delivery plunged $55.9, or 305.97%, to close at $37.63 a barrel. Since WTI futures began trading on the New York stock exchange in April 1983, the lowest price for the U.S. benchmark before then was $9.75 a barrel in April 1986. Brent crude for June delivery was at $25.54 a barrel. Brent prices fell 9 per cent last week, 48 per cent last month and 61 per cent in the first quarter.

In response to Monday’s drop in oil prices, sources said that WTI crude oil futures need to be delivered in Cushing and that the drop was due to traders holding the WTI may contract being unable to sell the contract and not having room to store the crude for delivery. This suggests that all the crude oil warehouses in Cushing have been booked, the storage market is in poor shape and stocks are close to full capacity, so the question remains whether the June WTI contract can avoid a slump. Further falls in the price of crude oil could cause more producers to shut down. If demand does not pick up by mid-may, the WTI crude contract for June could face the same fate.

Bob Yawger, head of Mizuho futures, said it was a historic day for WTI crude to plunge into negative territory. That suggests there is no room to store crude and that traders who are long the may contract are rushing to unwind their positions. The current situation is that both pipelines and inventories are full, and EIA data do not show that the current inventory of crude oil is at its maximum energy storage.

Technical analysis:

The dollar

On the daily chart, the dollar index rebounded in the consolidation, the MACD green momentum column slightly narrowed, the KDJ random index further higher, indicating that the dollar upward momentum is still alive, and then may resume a small rally.

On the 4 hour chart, the dollar index launched a modest rebound, the MACD red kinetic energy column unchanged, the KDJ random index moderately higher, indicating that the dollar will continue to moderate short – term rebound.

gold

On the daily chart, the gold price maintained the retracement trend since the high, the MACD red kinetic energy column significantly narrowed, the KDJ random index further declined, indicating that gold downward momentum to strengthen, may be further retracement.

On the 4 hour chart, gold prices remain under pressure, MACD green kinetic energy column unchanged, KDJ random index turned lower, indicating gold short term also maintain downward momentum.

fundamentals Positive factors:

  1. At least 782,159 cases of novel coronavirus infection, including 41,816 deaths, have been reported in the United States as of 6 p.m. et, according to the Johns Hopkins university real-time outbreak surveillance system.
  2. A lack of solidarity is fuelling the epidemic and “the worst is yet to come,” said world health organization (who) director-general Michel tandesay at a news conference in Geneva Monday. He said novel coronavirus was very dangerous, and he took advantage of differences between people, between parties and between countries, calling for “not to use this virus as an opportunity to fight each other or to score political points.”
  1. The us department of homeland security announced Wednesday that it would extend the “non-essential travel” restrictions on the us border with Canada and Mexico for another 30 days in response to a new outbreak.
  2. Protests against home segregation orders erupted across the United States on April 18, in Michigan, Ohio, Kentucky and Minnesota.

Fundamental negative factors:

1.Democrats and republicans disagreed Monday over who should be held responsible for the delay, as they worked out the details of a rescue plan that could exceed $450 billion.

2.US President Donald trump says the drop in oil prices is very short lived. Now is a good time to buy crude, and hopefully congress will support it. Up to 75m barrels of oil are being studied for inclusion in the strategic petroleum reserve.

3.March, April 16 U.S. President Donald trump laid out guidelines for a three-stage state-to-state economic reboot, set testing standards that states must meet, and required rapid provision of protective gear to reopen. The governors of each state can carry out the guidelines according to the conditions of their own state, rather than relying on the orders of the federal government. The guidelines, titled “open America again,” have not yet been officially released, and Mr. Trump has distributed documents to state governors.

4.US President Donald Trump said on April 15 that the us had passed the “peak” of the coronavirus outbreak. On Thursday he will discuss guidelines for reopening the United States. Now trump has canceled plans to set up a new task force to revive the economy and instead has held a series of phone calls with business leaders, according to two sources.

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