We’ll Get Used to It: Declarations of “War” Are Not Having the Requisite Effect

The oil rally that began yesterday amid news from Turkey is gradually coming to an end: Turkey made an extremely menacing statement that it would block deliveries of Iraqi oil. But Brent crude quotes soared above $58.80/barrel, which is a two-year record. Nevertheless, the rally did not last long: at the time of this writing, Tuesday evening, oil has already dropped to $57.80, and it appears that it will keep dropping through Wednesday when, of course, US oil inventory statistics come out.

You will recall that Friday’s numbers from Baker Hughes again indicated a decline in the number of rigs, supporting the trend identified by the international energy agency in the middle of this month. As they understand it, US production will contract until the end of the year and will remain moderate in 2018, which will help stabilize the oil market in the near term. According to the forecast, the data again indicate a decline in inventories, which just might give oil the strength to keep rising.

The gold market is quite unstable: the latest twist in the crisis over US-North Korea relations raised the price of the precious metal to $1315, but not for long: even sensational words like “war” are now being taken with a grain of salt and no longer have the requisite effect. Although the situation is potentially dangerous, demand for risky assets is growing, and investors are in no hurry to stock up on gold.

It appears that gold has found a more or less equilibrium at $1330 with intra-day variations from $1295 to $1305 independent of the news, at least until the next Fed meeting. The majority of US funds trading in gold are still experiencing disinvestment at a rate, on average, of about 0.8% per day. The news is basically prompting an inflow of 1.6% a day.

Yuri Prokudin, exclusively for Olymp Trade

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