Black and Yellow Gold Grinds To New Highs

Both Brent and WTI prices are heading higher again today, as the market remains worried about supply disruptions in Iraq.

Deteriorating conditions are the main fundamental driver. Investors trade on fear that production in the south of the country will be effected. Currently, the US is working with Iraq on a coordinated response to regain lost territory to Sunni rebels.

West Texas Intermediate oil rose +1.5% to $105.93 a barrel at 10:15 a.m. while Brent rose as much as +2.2% to $112.34 a barrel.

Also aiding crude was yesterday’s EIA supply report from the US. The report revealed a -2.596mln barrel drop in stocks and a new six-year low in inventories in Cushing, OK (down -196bbls), main storage hub. Summer driving season is expected to keep pressure on stockpiles. Prices should remain hovering near the three-year high, narrowing Brent premium to WTI. The US summer driving season is expected keep the pressure on stockpiles.

Gold is rallying again ($1,272), boosted by today’s softer US retail sales print (+0.3% vs. +0.5%, m/m) data. The yellow metal has bounced nicely off this weeks lows and has succeeded in penetrating the first line of resistance at $1,269. While still technically weak, the market remains a better seller of the metal on meaningful rallies. Fundamentals will take time to kick in as much of it depends on how US plays out over time.

Currently there is no incentive to push the commodity lower – price volatility remains well contained. A seasonality uptick is expected in Q3 and the possibility that the new Indian government will introduce more easing to the local market could be a longer-term supporter. To the techies, the right hand side (RHS) remains the most vulnerable.

Higher crude prices are also helping some commodity and interest rate sensitive currencies to outperform – the CAD ($1.0845) and AUD (0.9426) for instance. The ECB’s rate cuts last week mean the EUR has been increasingly cheap to borrow and sell in favor of high-yielding currencies like the AUD and NZD. With EUR rates trading through the Japanese curve, it elevates the EUR to be the primary funding currency.

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