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Gold falls as oil rally fuels rate hike bets before Fed meeting
Gold prices fell on Monday as an increase in oil prices raised inflation fears, which fueled expectations that the U.S. Federal Reserve would raise interest rates during its policy meeting later this week. By 0528 GMT, spot gold had fallen 0.5% to $4,327.09 an ounce after posting its third consecutive weekly drop on Friday. U.S. Gold Futures fell 0.9% to $4367.50. "Gold doesn't seem to be able to find conditions that suit it. "Gold isn't finding conditions to its liking," Tim Waterer, KCM Trade chief market analyst said. As a hedge against uncertainty, dips will still be sought by buyers while the geopolitics and rates policy are fluid. Data last week confirmed expectations that the Fed will increase interest rates. U.S. consumer price indexes accelerated in August while a key measure of underlying inflation showed its biggest rise in four months. According to CME FedWatch, traders are now pricing in an 87% probability of a rate increase at the central banks policy meeting this Tuesday and Wednesday. This is up from 67% before the last week's inflation data. BOJ will also likely raise rates this Friday. This is because persistent inflation and robust economic growth has raised the prospect of more rate hikes from major central banks. Gold is often seen as a hedge against inflation, but higher interest rates can make it less appealing. Oil prices rose more than 2% on Sunday after Houthi attacks on Saudi Arabia and Iranian attacks on Gulf ships compounded concerns over supply following the closure of an important Saudi oil pipeline. Middle East diplomacy appears to be in decline?after the postponement of a meeting between Iran &?other Gulf States. Silver spot fell 1%, to $63.80 an ounce. Platinum dropped 0.2%, to $1792.59 and palladium dropped 0.4%, to $1293.86.
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The oil markets have survived the Iran War sprint. Bousso: Now the marathon.
The expansion of the Mideast conflict to Yemen and the drone attacks on a Saudi oil pipeline are a reminder of an uncomfortable reality: the Iran War is not a temporary shock in energy supplies, but rather a long-term, unpredictable test of economic endurance. The markets are now adjusting to the new, more volatile phase in the conflict. Many of the safeguards which cushioned the initial shock nearly seven months ago have been removed. Donald Trump, the U.S. president, predicted last week that "the conflict" would only end after the midterm elections in November. The tone of the administration has changed significantly from its initial suggestion that the war would only last a few weeks. It is impossible to tell if this new forecast will prove correct, but recent events at two of the most important energy routes in the world suggest that it could be very optimistic. The Gate of Tears Houthis, who are allied with Iran in Yemen, have made rapid progress over the last week. They now hold the Bab el-Mandeb Strait near the southern entrance of the Red Sea. The group, which announced a blockade on the shipping route last July, has reaffirmed that all ships except those of Saudi Arabia are safe to transit. Saudi authorities reported that a series of attacks by drones launched from Iraq temporarily closed Saudi Arabia's East-West oil pipe, the kingdom's primary alternative to the Strait of Hormuz. Since the Strait of Hormuz was disrupted by the conflict in February, the?1,200 kilometre (745 mile) pipeline has become critical to the Kingdom. Saudi Arabia offset some of its losses from the Hormuz conflict by more than doubling the west coast exports through the pipeline in the first five month of the conflict. This is equivalent to approximately 4%-5% of global oil supplies. Kpler data shows that shipments in August fell to 2 million bpd, the lowest level since January. This was largely due to the Houthi blockade. According to the International Energy Agency, the output of what was once the largest oil exporter in the world fell to 6,000,000 bpd, the lowest in over three decades. Satellite images suggest that at least one pumping stations was damaged, but the extent of the damage and timeline for repairs are still unclear. Saudi Arabia is also likely to be able draw from stored crude in order to offset any disruptions to pipeline flow for several days. This escalation is occurring at a very dangerous time. Running Dry The disruption of Middle East oil exports - which made up around a fifth if global supplies before the war - has severely eroded world stocks. According to the IEA, inventories have dropped by 507,000,000 barrels or 2.8 million bpd since the war began. The fact that more crude oil has left Hormuz recently than in the beginning of the war is mainly due to more vessels using the route along Oman’s coast, under U.S. Navy surveillance. Kpler estimates that around 5 million barrels per day (bpd) of crude oil and refinery products have been shipped through the Strait since June. This is a quarter less than pre-war levels. However, the actual figure could be higher, as many ships turn off their navigational systems while transiting. Last week, Iranian attacks on more than a dozen oil tankers trying to transit the Gulf or cross Hormuz were a reminder of how dangerous transits can be. This status quo cannot continue. Middle East is the largest energy producing region in the entire world. It may be possible to reduce crude?exports for a couple of months, but not forever. According to IEA estimations, refineries like diesel, jet fuel, and gasoline have suffered far more than crude oil, with exports remaining 60% below their pre-war level. Diesel in particular has been severely affected, driving prices up to record highs. Saudi Arabian Red Sea exports could be further disrupted, putting additional pressure on global stocks. The latest flare-up may also lead to a reduction in the ship traffic through Hormuz. The fear of entering conflict zones is still a factor for tanker operators. Insurance and freight costs are at an all-time high, and naval escorts only partially mitigate the risk. Different tones How long can these market dynamics last? Iran's leadership sees the conflict as an existential threat and is therefore motivated to exert maximum economic pressure both on the U.S. economy and the global economy before any negotiations. Washington's increasing blockade on Iranian oil exports has severe consequences for the Islamic Republic, and the cost of continuing the conflict indefinitely is higher. Temporarily, the Houthi attacks and advances on Saudi infrastructure could temporarily "shift momentum" back towards Tehran. These competing pressures may eventually bring both parties to the table for negotiations. They could also encourage both sides to continue fighting, hoping that their bargaining positions will be strengthened by economic or military gains. Markets assumed that Trump would find a way out once the rising costs of gasoline and political costs became too much. This outcome was dependent on Tehran's willingness to cooperate. It has so far shown little willingness to cooperate. U.S. policymakers, traders and investors may have adapted to a conflict which appears manageable. If the war continues for several more months as Trump has suggested, there is a risk that the market will be left with fewer shock-absorbing devices. You like this column? Check out Open Interest, your new essential source for global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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Palm oil prices rise as crude prices soar
Malaysian palm futures jumped on Monday, supported by higher crude prices and rival soy prices in the Chicago market. By midday, the benchmark palm oil contract on Bursa Malaysia's Derivatives exchange was up 62 Ringgit or 1.29% at 4,876 Ringgit ($1,198.03). A Kuala Lumpur-based trader stated that "Today's FCPO is holding firm due to the strong crude oil and the?anticipation for better demand in the future for bio-diesel use." Oil prices rose by more than 3% Monday after Houthi attacks on Saudi Arabia and Iranian attacks against ships in the Gulf compounded concerns about supply 'following the closing of a Saudi oil pipeline. Palm oil is a better option as a biodiesel feedstock because crude oil futures are stronger. Dalian's soyoil contract with the highest volume fell 0.46% while palm oil contracts dropped 0.87%. Prices of soyoil on the Chicago Board of Trade rose 0.7%. As palm oil competes to gain a share of global vegetable oils, it is closely tracking rival edible oils. The ringgit (palm's trade currency) fell 0.12% in value against the US dollar, making it cheaper for foreign buyers. Exports of Malaysian palm oil products fell between 11.7% to 17.5% in the month of September, according to cargo surveyors. Technical analyst Wang Tao stated that the price of palm oil could 'test support' at 4,788?ringgits per metric ton. This is due to a wave c.
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Indonesian rescuers fight turbulent seas to find 129 passengers after a passenger ship capsizes
Officials said that hundreds of Indonesian rescuers, including the coastguard and navy, raced to board a passenger vessel that capsized over the weekend in the Java Sea as they searched for 129 people who were still missing. Six deaths have been confirmed. Rescue agency reported that the Virgo transport 8 ship, which was carrying 243 passengers, went missing early Sunday morning due to bad weather. The rescue agency has since rescued 108 passengers from the ship. It was traveling from Surabaya, East Java to Banjarmasin, South Kalimantan. Mohammad Syafii said that Monday's search was hampered by choppy waters, high waves, and strong winds. Syafii?added that the agency had deployed 622 personnel and 17 ships as well as five helicopters, aircraft, and helicopters to search for missing passengers. He said that some of the ships had arrived, but it was hard for the rescuers on board the capsized ship to get in. He said that he would have also deployed a team of specialized personnel with skills in underwater rescue, but that the conditions at present did not permit it. He said that while he waited for the weather to improve, he was identifying personnel with special skills. The death toll, meanwhile, remained at 6. A video released by the rescue agency shows a large ship painted red and black capsized in rough blue water. The red underside of the ship is visible. Near the capsized vessel, two small boats each carrying people were seen floating on rough water. Another official from the rescue agency said that the location of the capsized vessel is approximately 80 nautical miles (nearly 15 kilometres) away from the Trisakti Port command centre in Banjarmasin. Arianto Adi, an official from the port, stated that the wind conditions made it difficult to dock the ship. THREE-METRE WAVE CRASHES? INTO SHIP Syafii stated that the weather conditions were very bad at the time of the incident, with waves up to three metres high crashing into the vessel. In good weather, it takes about five hours to get to the destination from Trisakti Port. However, in bad conditions this can take up to nine. Edy Prakoso (another agency official) said that the ship leaning heavily to one side was caused by strong waves hitting its starboard side. Transport Minister Dudy purwagandhi stated that the capsized boat could hold 500 passengers and was therefore not overloaded. There have been many accidents on Indonesia's ferries, which are used to travel between its 17,000 islands. Sea travel is cheaper and more accessible than flying. Two ferries with hundreds of passengers on board caught fire in separate incidents last month. Five people were killed when a boat caught fire near Madura Island, and one person was killed in an accident on a ferry leaving Bali.
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Hormuz's shipping volume remains below the 10-day average over the weekend, according to data
Preliminary shiptracking data revealed on Monday that the number of commodity vessels transiting the Strait of Hormuz fell to just one digit per day at the weekend. This is well below the 10-day average of 14. Four vessels left the Gulf via the Strait over the weekend, including a Handysize vessel in ballast, an LPG-carrying Handy vessel, a Supramax vessel with fertilizer, and a Suezmax vessel loaded with crude oil or condensate. The data revealed that ten vessels entered the Gulf. These included a Handymax transporting grain, a Panamax transporting metals, and a Supramax transporting dry bulk cargo. The figures do not include any vessels that may have crossed the Strait with their Automatic Identification System (AIS) transponders off in order to avoid detection. The United Kingdom Maritime Trade Operations announced early Sunday morning that a vessel was hit by an unknown projectile as it transited the 'Strait of Hormuz. The status of the crew, damage assessment, and environmental impact are unknown. Saudi officials reported that a drone strike from Iraq temporarily closed down the East-West oil pipe in Saudi Arabia. This pipeline has been instrumental in relieving the blockage in the Strait of Hormuz. Before the Iran War began on February 28, the strait handled about 125 large commercial vessels each day. These included?tankers and gas carriers as well as?bulkers,?bulkers, and container vessels. This accounted for around 20% of the daily supply of crude oil and natural liquefied?gas in the world. Since mid-July, a U.S. ban on Iran-related shipping has halted Iranian crude exports. Tracking data revealed that 24 and 27 cargo?vessels travelled in the Bab el-Mandeb strait respectively on Saturday 'and Sunday compared to an average of 27 vessels over the past 10 days.
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New strikes in the Strait of Hormuz, Saudi Arabia have pushed up oil prices by over 3%
Monday's oil prices increased by more than 3% after the Houthi attacks on Saudi Arabia, and Iranian attacks against ships in the Gulf, compounded the supply concerns caused by the closure of an important Saudi oil pipeline. Brent crude futures increased $3.21 or 3.1% to $107.82 a barrel at 0340 GMT. WTI futures rose $3.17 or 3.2% to $103.22 a barrel. "This is a result of a step up in attacks against Saudi Arabian energy infrastructure. This includes targeting the vital east-west pipe," said ING commodity analysts, but noted that it was not clear how serious any potential 'damage would be or how long the line would be out-of-action. Saudi officials claim that the East-West oil pipe in Saudi Arabia was temporarily closed following a drone attack. Saudi officials say that the shutdown of the East-West oil pipeline, which allows Saudi Arabia to avoid the Strait of Hormuz by rerouting its exports and bypass the Strait of Hormuz, could threaten 4% of the global oil supply. According to industry sources who are familiar with Saudi Arabian exports, Yanbu only has enough inventory to cover five to seven days of exports. Saudi Arabian media released footage on Sunday showing damage to a mosque and homes in the southern Jazan Province. The Saudi state media claimed that this was the result of a Houthi-led attack. The Houthis claimed they also attacked a Saudi military facility in a neighboring province. The British maritime security agency UKMTO reported on Sunday that a vessel was struck by a projectile in the Strait Of Hormuz, which caused a fire, forcing the crew to evacuate. Iran confirmed that one person died and four crew members were injured aboard an Iranian commercial ship struck off its coast. Houthis, who are Iran-aligned, reached the strategic 'island of Perim' on Friday. They now want to consolidate their control over Bab el-Mandeb strait. This is another important oil transit lane, which has carried 4%-5% of global supply recently. Due to the disruptions, oil prices rose 8% last week and reached $100 for first time since July. Badr Albusaidi, the Omani Foreign Ministry, said on X Sunday that a meeting between Gulf countries and Iran scheduled for Monday in Oman to discuss the Strait of Hormuz has been 'postponed. Since the June breakdown of an interim agreement, no peace talks have taken place on the six-month war that was launched by Israel and the United States.
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Gold falls as oil rally fuels rate hike bets before Fed meeting
Gold prices eased Monday, as the?surge in oil prices raised inflation concerns. This boosted expectations that U.S. Federal Reserve will raise interest rates during its meeting this week. After posting its third consecutive weekly drop on Friday, spot gold fell 0.3% to $4334.31 an ounce at 0330 GMT. U.S. Gold Futures fell 0.8% to $4375.00. "Gold doesn't find conditions that are to its liking." "Gold is facing a yield headwind due to rising energy prices and rising rate expectations before the Fed and BoJ meeting," Tim Waterer, Chief Market Analyst at KCM Trade. In the meantime, dips will still be a good investment as a hedge against uncertainty while geopolitics remain fluid and rate policies are flexible. Data last week confirmed that U.S. consumer price growth accelerated in August. A key measure of underlying inflation also posted the largest increase since four months. According to the CME FedWatch Tool, traders are now pricing in an 86.5% probability of a U.S. interest rate hike during the central bank policy meeting scheduled for Tuesday and Wednesday. This is up from 67% before the inflation data released last week. BOJ will also likely raise rates this Friday due to persistent inflation, resilient economic growth, and rising energy prices. Gold is often seen as a hedge against inflation, but higher interest rates can make it less appealing. Oil prices rose more than 2% Monday following fresh Houthi attacks on Saudi Arabia and Iranian attacks against ships in the Gulf. These attacks compounded the supply concerns after the closure of an important?Saudi pipeline. Middle East diplomacy appears to be 'failing' after a meeting was postponed between Iran and other Gulf states. Silver spot fell 0.7%, to $64.02 an ounce. Platinum remained steady at $1796.90 and palladium remained unchanged at $1298.80.
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The FOREX Dollar is on the rise, and yen is near a 7-month high before Fed, BOJ Meetings
The dollar strengthened on Monday. The yen wobbled near a seven-month peak as investors considered possible rate hikes by the Federal Reserve and Bank of Japan this week. Meanwhile, rising oil prices due the intensifying conflict in the Gulf drained sentiment. The six-month long U.S./Israeli war against Iran has caused erratic price pressures that have pushed oil well above $100 a barrel. This has also shifted the rate path due to bouts of selling off in long-end bond. The European Central Bank increased rates last week, and warned that there would be more hikes. This set the stage for Wednesday's Fed policy announcement and the widely anticipated rate hike by the BOJ this Friday. The Bank of England will likely remain unchanged on Thursday. However, the vote is likely to come down to a close call. CME FedWatch showed that traders 'upped their bets on a Fed rate increase after Friday data showed U.S. Consumer Prices accelerated in August. They priced in an 86 percent chance of a rise this week and another later in the year. Shane Oliver is chief economist and head investment strategy at AMP. He said that the Fed may decide to delay, but it would be a mistake to wait until December. The euro fell by 0.1% to $1.1585 while the last price of sterling was $1.3516. After two weeks of a small decline, the U.S. Dollar Index, which measures the "greenback" against six other currencies was 0.12% higher, at 99.22. U.S. Treasury Yields remain near multi-year heights. The 2-year 'yield, which usually moves in line with Fed?rate expectation, eased a bit to 4.6148% after increasing 26 basis points last weekend. Despite the rising yields, and changing rate expectations, the dollar has not yet risen as major central banks are expected to also raise rates. In a recent note, Commonwealth Bank of Australia strategists said that Fed Chair Kevin Warsh must match his tough rhetoric and policy actions or risk further damaging his credibility in controlling inflation. They said that "there is a slight chance that the USD will ease if the FOMC raises, but Warsh downplays the risk of a follow-up increase in the press conference." Brent crude futures rose 3% to $107.6 a barrel, after Houthi attacks on Saudi Arabia and Iranian strikes on ships in Gulf compounded concerns over supply following the closure a Saudi oil pipeline. BOJ RECKONING: RISING YEN FACES BOJ RISE The?Japanese currency yen fell 0.3% to 154.03 against the U.S. Dollar, but it was still not far off its seven-month high at 152.89 which it reached last week. There are signs of a change in the market's sentiment towards the currency. Speculators have taken a net-long position for the first since February. Analysts at MUFG said in a recent note that a 25-bps increase was already priced. "For the yen's strength to continue, the BOJ must signal that it is planning to stick to the faster pace of increases." Analysts at TD Securities said that if a rate hike is not included in the agenda for the October or the December meeting, the dollar/yen could rally to 157-160. They expect the BOJ to raise rates roughly every quarter and move away from its semi-annual, gradual pace. The yen has risen 4% in the last month as investors expect the BOJ to be more aggressive with rate increases and show signs of repatriation. "Another hike would be catastrophic." James Athey said that failing to communicate effectively will be a major own goal. He added that expectations regarding repatriation of funds and GPIF asset changes are playing a key role in the yen's move.
Foreex-Dollar firms and yen wobbles at 7-month high before Fed, BOJ decision
Investors pondered the possibility of rate hikes by the Federal Reserve and?Bank of Japan. Meanwhile, a rise in oil prices?amped down risk sentiment.
As the fighting in the Middle East intensifies, global policymakers are faced with unpredictable pricing pressures. Oil prices have risen well above $100 a barrel. Rates have also been impacted by steep sales of long-end bonds.
The European Central Bank increased rates last week, and warned against further increases. This was ahead of the Fed's policy announcement on Wednesday, and a widely anticipated rate hike by the BOJ this Friday. The Bank of England will likely remain unchanged on Thursday but the vote is likely to close.
CME FedWatch showed that traders increased their bets on a Fed rate increase after Friday's data showed a rise in U.S. consumer prices in August. They priced in an 86 percent chance of gaining this week, and another later in the year.
Kieran?Williams, Intouch Capital Markets' head of Asia FX, said that markets are heavily conditioned for a hawkish weekend. The bigger surprise risk in FX is not who raises rates, but rather who fails to confirm current pricing.
DOLLAR FINDS FOOTING AHEAD of FED MEETING
The euro fell 0.28% to $1.1565 while the last price of sterling was $1.3503. After two weeks of small declines, the U.S. Dollar Index, which measures greenback against six currencies, is now 0.23% higher.
U.S. Treasury Yields remain near multi-year-highs. The 2-year yield, typically moving in line with Fed rate expectations is edging away from a recent high of 4.61% after increasing 26 basis points in the past week.
The dollar has not been able to move significantly higher despite rising?yields, and changing rate expectations. Central banks in major countries are also expected raise rates.
In a recent note, Commonwealth Bank of Australia strategists said that Fed Chair Kevin Warsh must match his tough rhetoric and policy actions or risk further damaging his credibility in controlling inflation.
They said that "there is a slight chance of the USD easing if the FOMC raises, but Warsh plays the risk of a follow-up increase in the press conference."
Brent crude futures also rose by 2%, to $106.7 a barrel. This was after the Houthi attacks?on Saudi Arabia?and Iranian attacks on vessels in the Gulf compounded the supply concerns that were already present following the closure of the Saudi oil pipeline.
BOJ RECKONING: RISING YEN FACES BOJ RISE
The Japanese yen fell 0.3% to 154.03 against the U.S. Dollar, but it was still not far off its seven-month high of 152.89 it reached last week. There are signs of a change in the market's sentiment towards the currency. Speculators have taken a net-long position on the yen for first time since Feb.
Analysts at MUFG noted that "a 25 bps increase is almost already fully priced," noting that BOJ must signal that it plans to stick with the faster pace of hikes in order for the yen strengthen further.
The yen has risen 4% in the last month, mainly due to expectations that the BOJ would?be quicker with rate increases and signs of possible repatriation by domestic investors.
TD Securities expects that the BOJ will hike about once a quarter, compared to its semi-annual, gradual pace. It stated that not putting another increase on the table would risk a knee jerk dollar/yen rise back to 157-160.
Ben?Bennett is the head of investment strategy at L&G Asset Management for Asia. He said that central banks around the world will be closely watching the Fed’s policy change.
If it appears that the Fed will be raising rates, the BOJ could again feel pressured to respond with a hawkish message. Otherwise, we may see a renewed weakness in the yen.
(source: Reuters)