Commodities Week Ahead: Gold Awaits Fed’s Cue; Oil Bulls Emboldened By OPEC

Gold’s slow-motion move at $1,200 an ounce is reaching an inflection point this week ahead of an anticipated Federal Reserve rate hike that could either push the precious metal back by propping up the dollar, or allow it to make a stronger run towards $1,250.

US crude is already seeking fresh highs from its new-found berth at $70 per barrel while UK Brent is pushing towards $80 after the Organization of the Petroleum Exporting Countries (OPEC) rebuffed Donald Trump’s demands to reduce no formal recommendation for any additional crude supply boost.

Copper, which soared to 19-month highs on Friday, could see new peaks too if the dollar exhibits any weakness.

h3 Soy, Sugar & Coffee To Depend On Brazilian Real/h3

Major agricultural markets such as soybeans, sugar and coffee will likely take their direction from the Brazilian real, given the currency crisis in the South American nation, which is a major exporter of the three crops.

“The Brazilian real has shown a tendency to make major lows in the September/October time-frame,” said Shawn Hackett of Boca Raton, Florida-based agricultural markets consultancy Hackett Financial Advisors. He added:

“With massive fear gripping the current state of Brazilian politics and with elections soon to be completed in October, there is a very distinct possibility that the Brazilian real may forge another important low and subsequent rally.”

Aside from the Fed meetings that will culminate with Wednesday’s announcement, this week’s economic calendar will feature US new home sales for August, German consumer confidence data and a reading on the Eurozone Consumer Price Index.

h3 New Breakthrough For Gold, Say Some; “Nay”, Says Goldman/h3

Gold, trapped in a $20-trading range on the either side of $1,200 for five weeks now, faces one of its most crucial tests ahead of an all-but-guaranteed 25 basis-point rate hike by the Fed.

Bets on Fed fund futures suggest that traders have almost fully priced in the upcoming rate hike, meaning there could be little upside for the dollar.

And while the US-China trade war has been unrelenting, there are suggestions that traders are becoming desensitized to the back-and-forth saga and Trump’s repeated threat tweets— another factor that could see gold return to its status as the original safe haven over the dollar.

Stocks could also extend their rally, with the Dow posting new record highs at the expense of the dollar.

“We believe the immediate bottom has formed in gold and we believe the upside move will consist of two unique legs higher,” Chris Vermeulen, an independent analyst said in a pre-weekend commentary. Vermeulen adds:

“The first leg is likely to run to near $1240~1250 and end near the middle of November 2018. The second leg of this move will likely run to near $1310 and end near May 2019.”

Investing.com’s daily technical outlook has a “buy” call on gold, the first in weeks, with sell the strongest target set at the 200-day moving average of $1,257. At this time of writing, US gold for December delivery was at $1,202 an ounce, below the 100-day moving average of $1,234.49.

Not all are bullish on gold in the immediate term. Goldman Sachs (NYSE:GS) has a $1,250 target but only in three months from now. Its updated three-, six- and 12-month forecasts also average around $100 lower to its previous outlook.

“We are already seeing a later-cycle U.S. economy with higher interest rates increasing the contango (negative carry) in gold,” the Wall Street bank said in an update published Thursday.

h3 “Strong Buy” For Copper, WTI and Brent/h3

US copper, which rose 8 percent last week to a February 2017 high of $2.838 a lb, is ranked a “Strong Buy” on Investing.com’s daily technical outlook, with a sell call only at the 200-day moving average of $2.859. At the time of this writing, US copper for December delivery was trading at $2.836, above the 50-day moving average.

For US West Texas Intermediate (WTI) crude, the recommendation is a “Strong Buy” too, with no meaningful sell targets for now.

Cary Artac of Artac Advisory in Bristol, Wisconsin said WTI could contain immediate pressure by holding above $70.20 a barrel, while $73.67 would remain its 3-5 day target. At the time of writing, WTI for December delivery was at $71.50.

For Brent, Investing.com’s call is also a “Strong Buy”, with the stiffest Fibonacci resistance set at $80.94. Brent for December reached a session high of $79.29 in Europe’s preopen trade on Monday.

Oil has been on a high for over two weeks on concerns over the Trump Administration’s plans to bring Iranian crude exports to zero, through sanctions coming into force on November 3. In a confusing signal to the market, the US President has also called on OPEC to put a lid on the market’s rally and promised to sell supplies from the US Strategic Petroleum Reserve if necessary, to curb rising prices at the pump.

“The risk is keeping positioning defensive enough, to where the trading community is not as long as they want to be” on oil, said Scott Shelton, broker and analyst with ICAP (LON:NXGN) in Durham, North Carolina.

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Written By: Investing.com