June saw the market taken by surprise by the Federal Reserve taking a bigger step toward the moment it will start withdrawing its monetary stimulus due to growing inflation concerns. This knocked the shine off gold and silver prices and took some steam out of oil prices. In reality, however, the Fed are a long way from withdrawing stimulus, but concerns are growing that inflation may be more than transitory. They have now pencilled in two interest rate hikes in 2023 and upgraded inflation estimates for each of the next three years.
Oil prices have gained almost 34% this year and bullish sentiment is now driving talk of $100 being breached later this year. In my view, this is being overegged as there are many bearish factors lurking in the undergrowth. A failure to agree upon further supply cuts at OPEC’s latest meeting, Chinese refiners cutting into their stockpiles to head off higher prices, possible return of Iranian oil and let’s not forget US Shale. The UAE seems to be intent on challenging Saudi dominance in the oil cartel and could once again result in an output war similar to 2020.
Demand levels are ramping up as the effects of COVID decline and the bullish outlook is supported by the latest CFTC data, which shows a significant speculative long position for oil. Surging U.S. fuel demand is combining with a stagnant U.S. domestic crude production and drawing down American crude inventories at the quickest pace in almost 40 years. As a result, the discount between WTI and Brent has narrowed substantially.
Base metals took support from Friday’s US Non-Farm Payrolls data with copper’s 3-month LME price breaking through the $9,400 mark again. Russia has followed China’s lead and imposed export duties on 340 steel and non-ferrous metals sold outside of the Eurasian Economic Union, effective 1 August 2021. These duties are intended to control inflation of metal prices domestically. China will auction base metals on 5 and 6 July in an attempt to curtail negative price pressures and speculation. These volumes have been largely priced in by the market, but investors remain cautious. On the whole base metals enjoyed another strong month as the post COVID recovery gathers pace.
Gold remains supported by concerns surrounding the spread of the Delta variant although rising U.S. Treasury yields have seen a monthly selloff with gold down 7.3% MoM. Russia sells significant volumes of Aluminium into Europe and Asia and Russia’s new tax may drive prices higher although many market participants believe that Aluminium prices in Asia have already peaked. Platinum lost 10.57% in June.
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