Gold and silver outlook remains bullish
In the volatile world of crude oil, prices continue to oscillate within a range, guided by the ebb and flow of demand concerns and the Middle East’s geopolitical landscape.
Writing for Saxo Bank MENA’s latest Weekly Commodities Report, Ole Hanson, Head of Commodities Strategy at Saxo Bank, noted that the market has witnessed a challenging trading environment as speculators grapple with unpredictable factors, leading to frequent adjustments in long and short positions.
Despite this, the combination of supply disruption risks, OPEC’s efforts, and a tightening product market suggest a potential upside in the first quarter.
Maintaining a view of Brent and WTI hovering around $80 and $75 per barrel, the risk/reward balance tilts slightly to the upside due to disruption risks, OPEC+ production restraint, a tightening product market, and possible rate cuts.
While crude oil stays rangebound, the fuel product market exhibits strength, notably in rising refinery margins and diesel prices supported by global stock levels falling below seasonal averages. Distillate supplies face disruptions from lower Russian supply amid Ukrainian attacks and Houthi incidents in the Red Sea and the Gulf of Aden.
On gold and silver
The outlook for gold and silver remains bullish, but both metals are stuck in a stalemate awaiting clarity on the timing, pace, and depth of future US rate cuts. Market fluctuations may occur as rate cut expectations build up, leaving prices vulnerable to correction. Short-term market direction for gold and silver hinges on economic data’s impact on the dollar, yields, and rate-cut expectations.
Despite a more cautious Fed and recent economic strength, short-term rates market expectations have reduced from over six 25 basis points US rate cuts to less than five, with expectations for the first cut in March plummeting to less than 20%.
Gold has only experienced a modest 2.5% year-to-date loss, attributed to geopolitical concerns in the Middle East, strong demand from central banks, and China’s middle class safeguarding their wealth amid property market crises and a weakening yuan. The market has also managed “paper” selling, evidenced by year-to-date outflows from ETFs and hedge funds selling almost 200 tons in the futures market last month.
Despite challenges, the gold market remains supported by physical demand from central banks, retail demand in China and India, and concerns in the Middle East, establishing a soft floor of around $2,000. An upside break of $2,065 appears challenging until there is more clarity on incoming US rate cuts. The recovery of gold and silver following an algorithm-driven selling reaction to stronger-than-expected US jobless claims suggests underlying demand remains robust.
Featured image: The combination of supply disruption risks, OPEC’s efforts, and a tightening product market suggest a potential upside in crude oil’s Q1. Image: John Camero
