Commodities Week Ahead: Oil, Gold Lift-Off May Depend On Powell And Yellen 

A retreating dollar and US bond yields sent oil prices to new opening highs for the week, with gold tagging along for the ride amid easing concerns about the debt crisis at China’s property giant Evergrande (HK:3333) (OTC:EGRNY). 

The broad lift-off in commodities may, however, still depend on what the Fed and Treasury say or don’t say about stimulus taper plans, inflation and the US debt ceiling in the next 24 hours.

That’s because Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen will head to Capitol Hill on Tuesday to give their periodic testimony to the Senate Banking Committee.

At his news conference last week after the Fed’s September policy meeting, Powell suggested mid-2022 as an appropriate target for concluding the central bank’s 18-month long asset buying program that has totalled $2.2 trillion. 

The Fed’s so-called dot-plot plan also called for interest rates, suppressed at near-zero since the Covid-outbreak, to be raised any time from next year onwards.

Powell’s Senate testimony could, however, force the reexamination of these targets, depending on how pundits, who try to read the tea leaves on the central bank policy, interpret them.

“Maybe (we should) label it Taper Testimony Tuesday?” economist Eamonn Sheridan asked in a post on ForexLive. 

As for Yellen, her headache remains getting a realistic read on whether Congress will agree to a new US debt ceiling deal before the Sept. 30 deadline that will shut down the US government and put the country on the path to a potentially devastating debt default.

Oil prices rose for a fifth straight day on Monday amid what had become fashionable to call “supply tightness,” as a partial squeeze on US production from a month-old hurricane led to excessive buying in futures of both crude and natural gas.

In Monday’s Asian trading, New York-traded West Texas Intermediate, the benchmark for US oil, was up $1.07, or 1.5%, at $75.05 per barrel by 2:03 PM in Singapore (06:03 GMT). This was after WTI rose 2.8% last week.

London-traded Brent crude, the global benchmark for oil, gained $1.02 cents, or 1.3%, to trade at $78.25. Brent gained 3.7% last week.

Both crude benchmarks are up more than 50% on the year, trading at October 2018 highs.

Natural gas, meanwhile, was up 3.6% at $5.385 per mmBtu, or million British thermal units, the highest since February 2014. Gas has rallied more 100% on the year so far.

Aiding the commodities rally, including gold, which gained 0.4% to above $1,758 an ounce, was a 0.8% drop in the yield on the US 10-year US Treasury note and a 0.1% slide in the Dollar Index to 93.23.

Jeffrey Halley, who heads Asia Pacific research for online trading platform OANDA, said a dialling down of contagion fears over China’s embattled property group Evergrande “has been an irresistible lure for the buy-the-dippers.”

Halley explained:

“Markets are nervous about supply constraints, no more so than Asia, which imports most of its energy needs.” 

“That alone should mean that price dips will have plenty of buyers queued up. Despite the Relative Strength Indexes moving close to overbought on both contracts, the fear index and physical demand equation indicated that a $80.00 handle on Brent crude will occur sooner rather than later.”

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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.