All the movement in the financial markets on Friday centered around the ongoing crude oil supply glut, and its downward pressure on energy prices. The ongoing slump for oil dragged the broader markets lower along with it, including other commodities and the precious metals. Spot gold was back into positive territory, up $2.20 to $1,074.70/oz by 10 am ET after sinking as low as $7 per ounce earlier in the morning. Silver and platinum had fallen farther and remained in the red, each down about 1.5%.
Oil Rout Continues
Both global stocks and oil opened sharply lower on Friday. West Texas Intermediate (WTI) was around $36.50/bbl and Brent crude was just above $39/oz, each fresh 7-year lows dating back to December 2008. This week marked the biggest weekly decline for oil prices in 9 months, without much hope for positive headwinds. The global economy (especially China) in a sluggish rut, energy demand continues to fall at the same time that supply remains in an enormous glut.
In fact, the International Energy Agency (IEA) predicts that the oversupply of crude oil will persist through at least the end of next year. Many oil producers around the globe are flat honest that at some point they cannot profit with oil below $50 or even $60 per barrel, meaning that these producers will be pushed out of the market eventually if prices don’t recover fairly soon. The IEA doesn’t see that happening on the supply side. U.S. oil prices (WTI) have lost 11% of their value since mid-November.
Basically every sector of the global markets have been touched by the oil glut—some of them benefiting from cheaper fuel costs. Commodities and the emerging markets tied to them, however, have suffered right along with crude oil. The only winners were the industrial metals, with saw a small rebound on rising demand in China and assurances from certain Chinese producers not to raise their output.
Thanks to the melodrama from the Federal Reserve, the outlook for the precious metals is uncertain insofar as their short-term volatility is concerned. It is just as likely that they are dormant and trade flat as it is that they bounce up and down through next Wednesday. Recent evidence is pointing toward volatility, but in either case, it’s likely that gold will continue to move sideways until the Fed chooses a definitive path and sticks to it.
Volatility in stocks and currencies has also spiked ahead of the Fed decision next Wednesday. The dollar was down slightly to 97.5 on the DXY on Friday.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.