Beginning All-Out Price War

Saudi Arabia plans to boost oil output next month to well above 10 million barrels a day, as the kingdom responds aggressively to the collapse of its OPEC+ alliance with Russia.

 

The world’s largest oil exporter engaged in an all-out price war on Saturday by slashing pricing for its crude by the most in more than 30 years. State energy giant Saudi Aramco is offering unprecedented discounts in Asia, Europe and the U.S. to entice refiners to use Saudi crude.

At the same time, Saudi Arabia has privately told some market participants it could raise production much higher if needed, even going to a record 12 million barrels a day, according to people familiar with the conversations, who asked not to be named to protect commercial relations. With demand ravaged by the coronavirus outbreak, opening the taps would throw the oil market into chaos.

“Saudi Arabia is now really going into a full price war,” said Iman Nasseri, managing director for the Middle East at oil consultant FGE. The Saudi Energy ministry didn’t respond to a request for comment.

Aramco’s unprecedented pricing move came just hours after the talks between the Organization of Petroleum Exporting Countries and its allies ended in dramatic failure. The breakup of the alliance effectively ends the cooperation between Saudi Arabia and Russia that has underpinned oil prices since 2016. Production limits agreed to by OPEC and its erstwhile partners expire at the end of the month, opening the way for producers to ramp up output.

The company’s shares plunged 9% in Riyadh on Sunday, the first time the stock slumped below its initial offering price. Aramco traded at 29.95 riyals as of 1:57 p.m., giving it a market value of 6 trillion riyals ($1.6 trillion). The Saudi government sold 1.5% of the energy giant’s shares at 32 riyals each in December.

Brent crude, the global oil benchmark, closed down 9.4% on Friday, its biggest daily drop since the global financial crisis in 2008, settling at $45.27 a barrel.

Saudi production is initially likely to rise to between 10 million and 11 million barrels a day in April, from about 9.7 millions a day this month, according to people familiar with Saudi thinking. The final figure would depend on the response of refiners to the price cuts, the same people said.

Maximum Pain

The shock-and-awe Saudi strategy could be an attempt to impose maximum pain in the quickest possible way to Russia and other producers, in an effort to bring them back to the negotiating table, and then quickly reverse the production surge and start cutting output if a deal is achieved. In a sign that both sides remain in talks, the OPEC+ Joint Technical Committee, a body of senior oil officials who advise ministers, plans to meet on March 18 to review the global oil market, according to delegates. Saudi and Russian officials are part of the JTC.

“It’s certainly a high-risk, high-stakes approach,” Tim Fox, chief economist at Dubai-based lender Emirates NBD PJSC, said Sunday in a Bloomberg Television interview. “It didn’t come together on Friday and I think market confidence that it will at some point in the next couple of weeks is actually quite low.”

The production increase and deep discounts mark a dramatic escalation by Prince Abdulaziz bin Salman, the Saudi oil minister, after his Russian counterpart Alexander Novak rejected an ultimatum on Friday in Vienna at the OPEC+ meeting to join in a collective production cut. After the talks collapsed, Novak said countries were free to pump-at-will from the end of March.

Record Discounts

With jet-fuel, gasoline and diesel consumption rapidly falling due to the economic impact of the coronavirus outbreak, the energy market now faces a simultaneous supply-and-demand shock.

After the failure in Vienna, Riyadh responded within hours by slashing its so-called official selling prices, offering record discounts for the crude it sells worldwide. Aramco tells refiners each month the prices for its crude, often adjusting the OSPs by a few cents or as much a couple of dollars.

But in a notice to buyers sent Saturday, Aramco announced it was slashing most official prices by $6-$8 a barrel across all regions. The dramatic move will resonate beyond Saudi Arabia. The kingdom’s pricing decision affects about 14 million barrels a day of oil exports, as other producers in the Persian Gulf region follow its lead in setting prices for their own shipments.

Bloomberg
Javier Blas and Anthony DiPaola
Bloomberg March 8, 2020

David

Volatile gold slides from 7-year peak as traders cover margins

* Gold still on track for best week since Feb. 2016

* Global stocks, oil tumble; U.S. Treasury yields at record low

* Platinum climbs over 3%; set for best week in seven

– Gold prices swung more than 1% on

Friday, sliding from a seven-year high as investors sold the precious metal to cover margin calls as the rapid spread of the coronavirus hammered equity markets.

Spot gold was up 0.1% at $1,671.24 per ounce by 1:58 p.m. EST (1858 GMT). U.S. gold futures settled 0.3% higher $1,672.40.

Gold jumped 1.2% to its highest since January 2013 at $1,689.65 earlier in the session, but then shed all those gains to drop as much as 1.4%. "We are seeing a lot of volatility in the equity markets, fairly large losses and uncertainty bringing the S&P below 3,000. We are most likely seeing liquidation of gold in order to cover margin calls," said Bart Melek, head of commodity strategies at TD Securities. "This is very reminiscent of what happened in the corrections during the financial crisis."

U.S. stocks tanked and the Dow Jones Industrials shed nearly 2%, while government bonds rallied as traders worried about a prolonged economic slowdown. Oil prices also collapsed more than 8% to their lowest levels since mid-2017. "This dip (in gold) should be bought up fairly quickly as the day goes on. As long as this virus is in the headlines out there, expect gold to continue higher," said Bob Haberkorn, senior market strategist at RJO Futures. Despite the losses, safe-haven gold is still on course for its biggest weekly gain since February 2016.

Nearly 60 new coronavirus cases were confirmed in the United States on Thursday. Globally, virus cases surpassed 100,000 and over 3,300 deaths have been reported.The International Monetary Fund on Wednesday said the outbreak would hold 2020 global output gains to the slowest pace since the 2008-2009 financial crisis. The epidemic poses "evolving risks" to the U.S. economy and central bank officials are monitoring developments closely, New York Federal Reserve President John Williams said on Thursday.

The Federal Reserve made an emergency 50-basis-point interest rate cut on Tuesday, its first inter-meeting cut since 2008. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

U.S. nonfarm payrolls data showed a robust increase in hiring in February, but the report may not reflect the full impact from the outbreak.

Palladium dipped 0.5% to $2,520.92 per ounce and silver was down 0.9% at $17.26 an ounce.

Platinum rose 3.1% to $891.08, on track to post its best week since mid-Janaury.

The second-largest platinum group metals producer, Anglo American Platinum , had slashed its output outlook dueto a shutdown following an explosion.

 

By Harshith Aranya
March 6 (Reuters)

 

David

Gold Reclaims its safe-haven allure

The last couple of weeks have contained extreme volatility in both the equities markets as well as the safe haven asset group. When U.S. equities began to selloff dynamically, we saw gold follow in tandem trading to lower pricing. It was not that gold lost its safe haven luster, rather it was mass liquidation of all assets as traders went either into cash or bonds.

However many gold enthusiasts believed that at some point if the equities markets continued to trade lower due to the coronavirus, and there was no real hope for a quick discovery of a vaccine for this disease that safe haven assets would once again be one of the most logical and solid places to park your money as equities ran to new lows.

On Friday of last week, we saw gold have its last dynamic drop in which it opened at approximately $1646, and closed and closed just above $1560. This was the last major decline in gold last week. Although this week started off with a whimper it did close above Friday’s close, however it had a very small range between its open and closing price creating a candlestick called a “Doji”.

While this particular candlestick can indicate indecision in the market, a point in time which neither the bullish or bearish faction can maintain dominant control, it can also indicate the time in which one faction loses control as the other faction regains dominance. In the case of Mondays “doji” candle it was a clear indication that the bearish faction had lost control and a pivot, or key reversal was about to begin.

What followed was a $42 upside move when on Tuesday the Federal Reserve announced an emergency rate cut in between FOMC meetings. This highly unusual action was in tandem with similar moves by other central banks globally. This signaled at least in the minds of central bankers that the current coronovirus, was continuing to spread and more importantly the possibility of an epidemic in China becoming a global pandemic increased.

Yesterday’s action was similar to Monday’s in that although it contained a higher high and a higher low, the open and closing range was very narrow. Even though yesterday’s high was slightly above Tuesday’s high, the high on Friday and Tuesday were exactly the same which technically created a double top. When gold traded above that top today it changed the short-term outlook and confirmed that there is a high probability that the rally which began this week could in fact challenge the yearly high of $1691 per ounce.

When you create a retracement from the high achieved on February 24 at $1691 to Friday’s low, the 61.8% Fibonacci retracement occurs at $1643. The fact that gold broke and closed above both the 61.8% retracement and the double top created from Friday’s and Tuesday’s highs is extremely significant.

Wishing you as always, good trading,

 

By Gary Wagner
Contributing to kitco.com

David

Equities continue to exhibit wild swing

There has been one constant in financial market movement over the last couple of years, and that is that market sentiment not only turns on a dime, but it is not rare to see a market trading strongly higher followed by a day in which it trades strongly lower with very little change in the underlying fundamental events which are supporting a market move.

The most recent example of this activity can be found in U.S. equities. With the Dow Jones industrial average containing three days in which it closed higher than the open, and two days in which it closed lower than the open over the last five trading days. After yesterday’s triple digit decline in the Dow of 785 points, today the Dow gained well over a thousand points closing up 1,173.45 points higher. While today’s gain was extremely impressive it was still smaller than Friday’s gain of over 1,200 points.

This extreme oscillation between major moves up and major moves down is indicative of the high level of uncertainty based upon the current coronavirus epidemic. While most analysts acknowledge that there will be an impact on global economic growth, the jury is out as to how severe the epidemic will be, and how long it will last before a vaccine is created.

One thing is for certain this is a scenario that has the potential to wreak havoc on economies worldwide that have been experiencing steady and solid growth since the conclusion of the 2008 financial crisis.

Just as in equities gold has had extreme moves both higher and lower over the last trading week. Today in comparison was rather meek with gold futures bases the most active April contract losing $7.80 on the day (-0.47%), and currently fixed at $1636.80. Today’s decline in gold was the result of both selling and dollar strength. The dollar gained ¼% in value today, which means that the additional 0.22% decline can be directly attributed to traders bidding the precious metal lower.

Spot gold closed off by five dollars today and is currently fixed at $1635.10. According to the KGX (Kitco Gold Index) $3.80 of today’s decline can be attributed to dollar strength, with the remaining decline of a $1.20 a direct result of selling pressure.

The rest of the precious metals were unchanged or higher on the day. Palladium continues to dominate in terms of percentage gains with spot palladium gaining $57 today, after subtracting $5.50 due to dollar strength. Silver closed in essence unchanged in both the spot and futures markets, and platinum futures gained $5.50 to close at 874.80.

Our technical studies indicate that there is major support at the 50-day moving average which occurs at $1572.20. Above that price point there is minor support at $1588 to $1597. The current level of support occurs at $1634 which is the 23% Fibonacci retracement level of the last rally. The studies also indicate that there is resistance just above current pricing with the first level occurring between $1543.00 and $1550. Above that there is resistance at $1665, with absolute resistance at the high achieved about a week ago when the market unsuccessfully challenged $1700 as it traded to a high of approximately $1690.70 per ounce.

Wishing you as always, good trading,

 

By Gary Wagner
Contributing to kitco.com

David

Emergency Fed action takes traders by surprise

As a preventative measure, the Federal Reserve today announced that they implemented an emergency move by having the central bank cut interest rates prior to the next FOMC meeting which will be held on March 18. Without any question this move is extremely rare to implement any monetary change prior to a FOMC meeting.

The Fed stated their decision was unanimous, and this decision occurred shortly after the G-7 finance ministers and central bankers promised to use all available tools to battle the slowdown caused by the disease (corona virus).

According to a statement released by the Fed, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.”

After the statement was released chairman Jerome Powell held a press conference in which he stated “Officials saw the virus spreading and this represented a material change in the outlook for economic growth.” He also expressed the rationale for the Fed initiating this emergency move, “We’ve come to the view now that it is time to act in support of the economy. Once we reached that decision, we decided to go ahead.”

The chairman also said that he believes “that our action will provide a meaningful boost to the economy.”

However, market participants, traders and investors were not so convinced. That proof is in the fact that U.S. equities were trading higher prior to Jerome Powell’s press conference and then began to selloff as he made his announcement and the rationale behind it.

The Dow hit a high today of 27,084.84, but it closed at 25,917, after factoring in today’s decline of 786 points which is just shy of a 3% loss on the day.

The 3% decline in the Dow is almost equal to the price gains in gold today of 2.76%. Gold futures bases the most active April contract gain $44 on the day and closed at $1638.80. While the upside move in gold in response to the emergency action by the Federal Reserve was logical and within expectations of how the safe haven asset would react. The same cannot be said for U.S. equities which were initially higher but sold off dramatically to the same information. Typically, when the Federal Reserve cuts rates it is bullish for both risk on and safe haven asset classes. That did not occur today.

Wishing you as always, good trading,

 

 

 

By Gary Wagner
Contributing to kitco.com

 

David

Two reasons that gold moved Higher

Gold had an exceptional day, breaking the strong price declines gold had last week. Although it closed twenty dollars off of last night’s high of 1612.10, it still had managed to gain $23.50, with April gold closing at $1590.

It was not one but two primary reasons that we saw such a strong move in gold. The first was statements made by many global central-banks. Also the belief that the Federal Reserve’s monetary policy will be revised and announced at their next FOMC meeting to be held on March 18. Previously according to the Fed’s dot plot, they had planned to keep interest rates unchanged throughout the entire year of 2020. However recently many analysts have been on record stating that the Federal Reserve will revise that monetary policy to now include rate cuts.

According to the CME’s FedWatch tool there is a 100% probability that in March the Fed will reduce rates. Currently they are on record stating they planned to keep rates unchanged this year at 150 or 175 basis points (1.5% to 1.75 %). In fact, the prediction for March is that there is a 100% probability that rate will go to 75 basis points. More importantly is the FedWatch tool’s prediction for the April FOMC meeting could contain a second rate drop this year. With a 71.8% probability that the Fed will lower rate to as low as 1%.

To see the FedWatch tool have a prediction of a 100% probability is extremely rare and strong, but to have three consecutive months that show consistent rate drops is an exceptionally sharp revision of their current monetary policy.

The sharp revision to a much more accommodative monetary policy by the Federal Reverse is in tandem with many other central banks. The Bank of Japan’s governor Haruhiko Kuroda stated on Monday “The central bank will make every effort to ensure stability in financial markets roiled by the coronavirus outbreak. The fact that the central banks have become so much more accommodative and rate reductions are planned in multiples rather than a single event underscores the second reason that gold move higher today.”

It is the common acceptance that the current corona virus outbreak will most certainly deepen until a vaccine is created. The longer that takes the higher the probability the current “epidemic” becomes a pandemic. Since currently we have seen a major effect on the global economy in terms of contraction should this occur it will have a devastating impact on global economic growth leading to lower stock prices globally, which would put the safe haven asset of gold as the most realistic and viable alternative place to park that investment capital.

For those who would like more information simply use this link.

Wishing you as always, good trading

By Gary Wagner

David

The only gold price question Scotiabank is asking is how sharp is the uptrend

Gold’s recent disappointing performance is not affecting sentiment at the world’s largest mining conference as one market analyst expects prices to continue to push higher through 2020.

Nicky Shiels, commodity strategist at Scotiabank, kicked off her precious metals outlook, at the Prospectors and Developers Association of Canada 2020 conference in Toronto, Canada, by declaring that “Gold was back in vogue,” and embarking on a new uptrend.

She added that the only question for the precious metal is the trajectory of the uptrend for 2020. Looking at prices, Scotiabank has increased its forecast for the year; Shiels said that she sees gold prices pushing to $1,750 an ounce and averaging the year at $1,625 an ounce, a 1.5% increase from the previous forecast.

In the medium to long term, Shiels noted that there is a possibility that prices rally to $1,900 an ounce.

Her comments come as gold prices see a positive start to the week after Friday’s sharp selloff. Sunday evening, gold prices pushed back to within striking distance of gold. April gold futures last traded at $1,584.20 an ounce, up more than 1% on the session.

Growing fears that the spreading coronavirus will weigh on global growth, a dovish Federal Reserve, weaker U.S. dollar and equity market volatility will all support gold prices, said Shields. Even with gold holdings in exchange-traded products at record highs, the analyst said that there is still room investment demand to grow.

“Gold remains an investment story,” she said. “Generalist investors remain underweight gold. Investors owned three-times more gold in their portfolio when prices peaked in 2011.”

Shiels added that even with the near-panic sentiment in the marketplace, gold’s fear premium is only around $60. She said that historically, this fear premium has swung plus or minus $200.

“Gold hasn’t priced in peak fear,” she said.

Shiels added that she is also bullish on gold as the yellow metal continues to dominate currency markets. She noted that gold has hit record highs in all major currencies except the U.S. dollar.

She added that it is only a matter of time before the U.S. dollar becomes the next shoe to drop.

“Gold is a reliable hedge against growing U.S. debt,” she said. “Enormous deficits bring into question the role of fiat currencies.”

Looking at silver, although Scotiabank is bullish on the metal, Shiels is not as upbeat as she is compared to gold.

The bank sees silver prices averaging the year around $19 an ounce.

 

Fundamentally, Shiels said that the silver market is oversupplied; however, prices should follow in gold’s slipstream.

“Silver will remain a cheap high beta to gold,” she said.

Scotiabank is also bullish on Platinum Group Metals as a whole. The bank sees prices platinum prices pushing back above $1,000 an ounce and palladium could go as high as $3,000 an ounce.

 

By Neils Christensen
For Kitco News

 

David

Palladium slumps nearly 13%, gold up to 4.6% as precious metals join virus-led free fall

* Palladium facing its worst daily performance since 2008

* Palladium sheds about $390 from Thursday’s record high

* Platinum on track for worst week since 2008

* Silver set for its biggest weekly decline since 2011

Feb 28 (Reuters) – Palladium led a free fall in precious metals on Friday, slumping nearly 13% at one point earlier in the session, while gold slid as much as 4.6% en route to its biggest daily drop in almost seven years, as coronavirus drove panic-stricken investors to liquidate assets across the board.

The rout hammered other precious metals as well, with platinum declining as much as 6.1% and silver sliding 7.4%.

“A lot of investors and traders are having to meet margin calls for other products, so they are selling what they can. That’s why it is hitting gold and the gold mining stocks,” said Michael Matousek, head trader at U.S. Global Investors.

“People are trying to sell whatever they can. It’s an overall sell-off.”

Spot gold plunged 4.5% to $1,568.96 per ounce as of 2:15 p.m. EST (1915 GMT), leading to the biggest one-day percentage decline since mid-2013. U.S. gold futures settled down 4.6% at $1,566.70.

The precious metal saw sharp price swings this week, having hit a seven-year high of $1,688.66 on Monday. The metal is now on track to post its steepest weekly decline since November, 2016.

The rapid spread of the coronavirus raised fears of a pandemic, with six countries reporting their first cases and the World Health Organization warning it could spread worldwide.

The virus panic sent world share markets on course for their worst weekly fall since 2008, with almost $6 trillion wiped from their market value so far this week.

“As sentiment has deteriorated, investors have closed some of their open positions in currencies, but most likely also in gold. Therefore, gold prices have failed to make new highs now that equity markets have aggressively sold off,” ABN Amro analyst Georgette Boele wrote in a note.

“If risk aversion were to result in a market panic, investors will find cash and very liquid assets attractive. They will probably liquidate gold investment positions.”

In other precious metals, palladium was down 10.8% to $2,538.21 per ounce, its worst one-day performance since the 2008 financial crisis, after slumping 12.7% earlier in the day. The metal has shed about $390 from a record high of $2,875.50 hit on Thursday.

“With palladium it is a similar phenomenon, where people need to sell to cover up their losses elsewhere,” said Ryan Giannotto, head of research at GraniteShares.

The auto catalyst metal was still on track to gain for the seventh consecutive month due to a sustained supply shortfall.

Platinum shed 5.5% to $849.63, facing its worst weekly fall since 2008.

Silver plunged 7.2% to $16.43 an ounce, on track for its worst week since 2011

 

Reporting by Swati Verma and Brijesh Patel in Bengaluru; Editing by Steve Orlofsky and Jonathan Oatis

David

Why are stocks and gold both under so much selling pressure?

Over this entire trading week analysts, traders and investors have remained bewildered not so much at the extent of the selloff, but analysts and investors were even more perplexed at the major selloff that occurred in gold in tandem with an asset class that traditionally carries a negative correlation. With so much warranted selling pressure in global equities many have been perplexed as to why gold found no support and not only sold in tandem with risk on assets, but had deep and severe drawdowns at a time when many believed investors would flock to the safety of gold.

Over the last two days I have been speaking about the last time market participants witness this kind of carnage in both risk on and safe haven assets simultaneously; that was 2008 immediately following the financial crisis created from the banking crisis. I remember that during the 2008 – 2009 financial recession we witnessed the simultaneous mass liquidation in both equities and gold.

In 2008 analysts explained that the unique phenomenon was a result of mass liquidation of all assets to cover margin calls as well as a major component of fear resulting in the liquidation of any investment vehicle that wasn’t bonds or cash.

That being said today’s dramatic $55 decline in gold futures is extremely hard to fathom in light of the first real correction in U.S. equities since 2008. This week the markets lost approximately 13%, with the Dow Jones industrial average down 12% on the week. This kind of selling hysteria has not occurred for over 12 years.

Before gold began its historical climb to the record high of $1900, gold first hit an all-time high of $1000 per ounce, before retracing a full 30% to $700. It was only after that deep correction occurred that market participants interest in gold accumulation and investment interest reemerged.

Which brings me to the following assumption, this most current selloff is much different than the financial crisis of 2008. Unlike a recession caused by a fragile economic scenario, the world has never experienced a full-blown pandemic since 1918. Although there were isolated and smaller pandemics in 1930,1940, and 1950, they all pale in comparison to the influenza pandemic which is considered the most severe pandemic in recent history. The 1918 pandemic resulted in an estimated 500 million people, or roughly 1/3 of the world population becoming infected by the virus. By the conclusion of this pandemic at least 50 million individuals worldwide died including 675,000 deaths occurring in the United States.

The similarities between then and 1918 are shockingly similar in that there is no vaccine to protect against this type of influenza.

The only silver lining to any comparison of 1918 pandemic to the potential of the current epidemic becoming a full-scale pandemic is that modern science and medicine is grown by leaps and bounds over the last 100 years. That allows the world population much more hope that it is still possible to contain this formerly unknown contagion.

However, until a vaccine is developed the current fear of a potential pandemic is alarmingly real, and completely a viable outcome. So, we hope for the best and prepare for the worst and realize that in between the markets could experience continued extended volatility and deeper price corrections.

For those who those who would like more information simply use this link.

Wishing you as always, good trading,

 

By Gary Wagner

Contributing to kitco.com

David

Shark Tank's Robert Herjavec: the scariest threat to safety is not just coronavirus

The coronavirus has not only left the world paralyzed with fear of getting sick, but also presents new opportunities for hackers to attack the private sector, this according to Robert Herjavec, founder and CEO of Herjavec Group and star of Shark Tank.

“Robert Mueller had a great saying, which was ‘there’s only two types of companies, those that have been hacked and those that are about to be hacked,’” Herjavec told Kitco News. “What I tell people is, ‘I can’t stop you from being hacked, but I can create an ecosystem [such] that when you have an intrusion, you can quickly know it’s going on.’”

Herjavec, who helms a cyber security solutions company, said that a large number of cyberattacks come in the form of email phishing.

“My general rule for people that work at companies is anything that isn’t business oriented, that you don’t know the source of, you probably shouldn’t be opening it up at work,” he said, adding that a personal email account that gets phished can be an inconvenience, but exposing an entire company to such a risk can be “really bad.”

The security compromises from the U.S. presidential elections in 2016 have put cyberattacks at the nationwide level on the public’s radar, thereby lowering the chances of electronic voting taking place in the near future, Herjavec said.

“My big hope was that we’re going to have electronic voting, because if I can vote from my phone, from an app, guess what? You’re going to have voting rates way above 30%. With what happened last election, what it’s made people realize is it’s fundamentally not safe,” he said.

David