Gold, Crude Oil, Copper Forecast: Markets Recalibrating After FOMC Week
Jun 22, 2021
By: Thomas Westwater
Gold prices keenly focused on this week’s US PCE data
Crude oil bulls drive price higher after Iran election
Copper holds support as headwinds take toll on price
Gold’s FOMC-induced drop appears to be moderating after the yellow metal rebounded to start the week. XAU/USD moved higher from the 1761 level hit late last week, aided by a slightly weaker US Dollar. The June FOMC policy decision hammered precious metals prices last week when the Federal Open Market Committee (FOMC) shifted its timeline up to pull back the super-easy policy markets have enjoyed.
The updated Summary of Economic Projections (SEP) showed that 13 Federal Reserve board members see at least one rate hike by 2023, up from seven in the last SEP. Rising consumer prices are responsible for a large part of the shift in the Fed’s outlook, with the latest data showing a 5.0% increase over the last 12 months, according to the Bureau of Labor Statistics.
That said, investors will be keenly focused on inflation data in an attempt to forecast the Fed’s next move. Higher than expected figures will likely only bolster rate hike bets, while weaker data should bring a less hawkish view. This week will bring consumer price expenditures for May across the wires, with analysts expecting core prices – the Fed’s preferred inflation metric – to rise 3.4% on a year-over-year basis.
Chart created with TradingView
Crude oil prices are also gaining, with a weaker US Dollar and stalled talks between Iran and the United States helping to boost the energy prices higher. Ongoing vaccination rollouts across major economies are also helping to strengthen the growth rebound narrative, and while variant Covid strains are causing concern among government leaders, no broad-based lockdowns are expected as of now.
Negotiations between the United States and Iran stalled over the weekend after Ebrahim Raisi secured Iran’s presidential nomination. The hardliner former judge sent a negative signal to the oil market’s supply outlook as markets see the shift in Iran’s political climate working against the two countries reaching a deal to lift sanctions and return Iran’s oil supply to global markets.
Overall, oil markets will likely continue trending higher as the near-term supply outlook is not seen rising in a commensurate fashion alongside demand. Even if Iran and the US struck a deal tomorrow, returning Iranian oil to the global market may take months. Even then, Iran’s output constitutes less than 5% of total global supply. While a deal would ease the upward pressure seen on prices, OPEC would also have to boost its production as US shale output is unlikely to ramp up significantly this year, according to industry experts.
Chart created with TradingView
Copper was another victim of the Federal Reserve last week. The red metal’s price dropped over 8%, its worst weekly performance in over a year. Other industrial metals, like platinum and palladium, were also losers. The strong US Dollar was a major depressant on prices last week. However, like gold, copper is also receiving a bid to kick the week off.
The drop in industrial metal prices wasn’t solely due to the Fed’s hawkish rate decision last week. A recent regulatory move from China has put weight on prices. The National Food and Strategic Reserves Administration announced earlier this month that it will release reserves of copper, zinc, aluminum and other metals in public auctions. The move by Beijing is certainly an added headwind, but the government agency failed to clarify specifics such as how much of each metal it will be auctioning off.
Still, rising economic growth in the United States and Europe, as well as other economies across the globe, may underpin support for the industrial bellwether. Moreover, pending infrastructure legislation in the United States may soon add support for the bullish narrative. China’s latest moves may keep a lid on prices for now, but it is unclear how long the world’s second-largest economy can effectively control prices of a commodity that is driven by global supply and demand fundamentals, despite its oversized influence in the markets.
Chart created with TradingView
Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.
tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.
Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.
Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.