Commodities corner: Consternation bias
Commodities in general and gold in particular were unwitting beneficiaries of the Silicon Valley Bank collapse, lifting investors out of their gloom about a future dominated by more rate rises from the US Federal Reserve and a stronger US dollar.
The US jobs report’s details were a bit mixed – a bit worse than expected in that 311,000 new jobs were created in February, against forecasts around 220,00. But wages growth was weak, which gave a little heart – then the Silicon Valley Bank story erupted before trading started in equities on Friday as Californian regulators closed it and appointed the key federal regulator, the FDIC, as its receiver.
That saw the acceleration in the flight to quality seen late Thursday in the selloff in bank shares and rise in the US dollar and Treasury bond prices (and a dip in bond yields) which accelerated on Friday).
The yield on 10-year US Treasuries tumbled from 4% early Thursday (US time) to a close late Friday of 3.70% as many in the markets sought safe haven protection.
A week ago, yields on 2-year treasuries had been around 5%, but by Friday’s close had dropped to just over 4.5%.
The supposed linkage between this bond and the Fed’s monetary policy move was shattered by the surge in buying from antsy traders and investors.
Gold joined US bonds and non-bank investments as ’safe havens’ while the mess at SVB saw share Wall Street losses continue and end down where most of January gains have been wiped out – The S&P 500 rose 6.2% in January – by Friday only 0.58% of that gain was left.
The value of the US dollar weakened Friday as the euro in particular rose more than half a per cent and this in turn encouraged commodities.
So up went gold, jumping nearly 2% on Friday, driven by the slide in US Treasury yields.
It was a year ago gold saw the same thing in the wake of the Russian invasion of Ukraine – that boost lasted for months but this time there’s no assurance the boost will last any more than a few days unless another major bank or bond holder is caught up (other than Silvergate Bank, the crypto servicing bank that shut its doors last week).
Comex gold futures settled at $US1,867.20 an ounce and then rose another $US10.50 in afterhours trading as the demand for the metal continued. That pushed the gain on the day to more than 2%.
Friday’s gain pushed gold to a small 0.54% gain for the week.
Comex silver futures also jumped, rising 2.2% to settle at $US20.506 an ounce. But it was still down 3.6% for the week.
Comex copper edged up 0.8% for the week to $US4.0355 a pound and then fell further after hours to $US4.0070. Traders were not happy with the week’s economic data from China.
“I think the main focal point is yields and with yields dropping today, that is a boost for the gold market,” said David Meger, director of metals trading at High Ridge Futures, told Reuters.
“As the marketplace sees it, the wages component of the U.S. jobs report was tamer than expected, which has apparently mitigated the higher-than-expected rise in non-farm payrolls,” wrote Jim Wyckoff, senior analyst at Kitco Metals in a daily note.
“There is keener risk aversion in the marketplace to end the trading week, and that is likely prompting some safe-haven demand for gold and silver.”
And investors will be watching where the ripples from the SVB collapse end up this week. Any instability makes gold bugs happy.
Oil got a small kick from the banking problems, or rather the weakness in the value of the US dollar and falling bond yields – US West Texas Intermediate (WTI) crude futures rose 1.27% for the day, settling at $US76.68 and Brent rose to $US82.78 for a gain of just over 1% for the day.
But Brent shed 3.55% for the week and WTI lost 3.77% as fears about a recession dominated trading earlier in the week and the faint signs of a softening in the February jobs data (a slowing in wages growth and a rise in the jobless rate to 3.6% from 3.4% in January) gave a push to prices on Friday as well.
Another fall in weekly rig numbers – the 4th in a row – didn’t help sentiment, but was ignored by traders looking at the jobs data.
Baker Hughes said in its weekly report on Friday that the oil and gas rig count fell by 3 to 746 in the week to March 10, the lowest since June.
Despite the fall, Baker Hughes said the total count was still up 83 rigs, or 13%, over this time last year.
US oil rigs fell by 2 to 590, also the lowest since June, while gas rigs eased lower by 1 to 153.
Despite lower rig counts seen in recent months, US crude production was still on track to rise from 11.9 million barrels per day (bpd) in 2022 to 12.4 million bpd this year and 12.6 million bpd in 2024, according to projections from the U.S. Energy Information Administration (EIA). That compares with a record 12.3 million bpd in 2019.
Those oil production forecasts for 2023 and 2024, however, were lower than EIA’s projections in February.
Iron ore prices jumped to more than $US128 per tonne in Singapore on Friday – a rise of around $US2.65 the previous Friday and more than $US6 above the week’s low of $US122 on Monday.
Newcastle thermal coal futures for April delivery ended at $US193 per tonne, down 1.2% over the week.
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