Natural Gas Price Prediction – Prices Hold Support as Rig Count Fales

Natural gas prices moved lower on Friday, despite a 2-rig drop during the current week. Prices pushed through support but rebounded to close above support levels. The weather is expected to be warmer than normal for the next 2-weeks throughout the middle of the United States. A weaker than expected Chicago PMI also weighed on natural gas prices.

Technical Analysis

Natural gas prices moved lower on Friday, initially breaking through support near an upward sloping trend line that comes in near 1.83. Resistance is seen near the 10-day moving average at 1.89. Short term support has turned positive as the fast stochastic generated a crossover buy signal in oversold territory. The current reading on the fast stochastic is 18, below the oversold trigger level of 20 which could foreshadow a correction. Medium-term momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices.

Rig Count Declines

Baker Hughes reported that the number of active U.S. rigs drilling for natural gas declined by 2 and oil declined by 15 to 222 this week. The oil-rig count has now fallen for 11 weeks in a row, suggesting further declines in domestic natural gas output. The total active U.S. rig count, meanwhile, also fell by 17 to 301, according to Baker Hughes.

Gold Price Prediction – Prices Rise on Weak Chicago PMI report

Gold prices rallied nearly 1% on Friday, following worse than expected personal spending and weak manufacturing figures. Concerns over the US and China’s locking heads are also helping to buoy the yellow metal. The dollar continued to move lower as yields edge slightly lower, which helped buoy the price of gold.

Technical Analysis

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Technical analysis

Gold prices moved higher recapturing resistance which is now support near the 5-day moving average at $1,720,  Target support is still an upward sloping trend line that comes in near $1,698. Below that level is support near the 50-day moving average at $1,684. Short-term momentum has turned positive as the fast stochastic recently generated a crossover buy signal. Medium-term momentum is negative but turning neutral as the MACD (moving average convergence divergence) histogram is printing in the red with a rising trajectory that points to consolidation.

The Institute of Supply Management reported that the May Chicago PMI came in at 32.3 versus expectations it would rise to 40.0. This compares to 35.4 in April. That’s the weakest since 1982. Among the main five indicators, order backlogs and supplier deliveries saw the largest declines.

For a look at all of today’s economic events, check out our economic calendar.

Silver Weekly Price Forecast – Silver Markets Reach Towards Highs

Silver markets initially pulled back during the week to show signs of weakness, but then rallied rather significantly to break above the $18 level on Friday. By doing so, this is a very bullish sign and it is likely that we will see a lot of resistance near the $19 level. In fact, we have seen the $19 level offer selling pressure than once, so to simply blow through there would be exceedingly difficult to happen. I believe that a pullback is a bit overdue, although one would have a hard time arguing with the bullishness of at least the precious metals part of silver.

SILVER Video 01.06.20

I do believe that the $17 level should be rather supportive, and most certainly the $16 level as well. The biggest problem with move as of late is that silver depends on a lot of industrial man, something that does not seem to be highly likely at this point. Ultimately, this is a market that I think we are going to see a lot of volatility in, and clearly buying all the way up here is a bit difficult to do as it is stretched. That being said, the market will be difficult to short, so I think more than anything else you probably have an opportunity to buy silver at cheaper levels, and that is something that longer-term investors will be looking at with great interest. Do not use a lot of leverage in this market, that would be a great way to lose money at this point.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Weekly Price Forecast – Crude Oil Continue to Reach Towards Gap

WTI Crude Oil

The West Texas Intermediate Crude Oil market has gone back and forth during the week, as we continue to see a lot of noise in general. That being said, the market is likely to continue seeing resistance just above as it is the beginning of the massive gap that continues to be one of the biggest technical areas on the chart. I think that we probably will eventually break out to the upside and then go looking towards the $41 level above which coincides with the 200 day EMA. I do not expect break above the $41 level.

WTI Oil Video 01.06.20

Brent

Brent markets of course went back and forth during the week, as we continue to see a lot of noise when it comes to the energy market. Quite frankly, this should not be a huge surprise considering that the market has to deal with when it comes to demand and of course questions as to whether or not some of the members of OPEC plus will continue to keep the production cuts and play. At this point, I think that we probably go looking towards the $40 level, and then possibly even break above there to go looking towards the $45 level.

All things being equal, we could pull back to the $30 initially, so with that it is possible that the buyers will come in based upon value at that point. If we did break down below the $30 level, then it means we get another leg lower. All things being equal, the market is likely to be positive though, it just simply because we need to fill that gap.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Weekly Price Forecast – Natural Gas Markets Continue Sideways Disruption

NATGAS Video 01.06.20

Natural gas markets initially tried to rally during the trading week but found the $2.00 level to be far too much in the way of resistance. That is an area that I think continues to be remarkably interesting to traders, but ultimately this is a market that looks as if it is trying to find some type of bottoming pattern. At this point, I think that we are likely to see a move down towards the $1.60 level before the buyers start to return.

It is difficult to deal with this type of action from a longer-term standpoint, simply because there is so much in the way of choppy behavior. Having said that, there is a lot of support underneath at the $1.50 level from a longer-term perspective as well, so I think we are in the process of at least trying to form some type of bottom, but the question is whether or not it can hold. I do not anticipate much in the way of momentum either way, so I would probably lead you towards the daily charts more than anything else.

If we break above the $2.13 level, which is the 50 week EMA, then obviously that would be a major shift in attitude as it is a large technical barrier. Breaking above there allows the market to go looking towards the $2.50 level. We need to see economies opening up a driving up demand in order to drive natural gas price higher. So far, it has been lackluster, but we should get plenty of bankruptcies to help as well.

For a look at all of today’s economic events, check out our economic calendar.

Gold Weekly Price Forecast – Gold Markets Form Support of Looking Candle

Gold markets initially fell during the week but found enough support at the $1700 level to turn around and form a bit of a hammer. This has been an interesting couple of weeks for gold, as it simply consolidates in general. I think at this point it is likely that we will continue to see this market show a lot of noise, and therefore it is going to be difficult to simply jump in with a huge position. Having said that, you clearly cannot short gold at this point, there is a lot of the world out there looking to buy gold “on the cheap.”

Gold Price Predictions Video 01.06.20

At this point in time, the $1700 level looks to be crucial, just as the $1760 level is. If we can break above there, then it is likely would go looking towards the $1800 level. Breaking above there then opens up the possibility of a move to $2000, something that I do feel it is only a matter of time before we reach. After all, there is plenty of central bank printing, and it is likely that the gold markets respond due to the fact that fiat currencies are trying to be devalued. If that is going to be the case, then people will run towards precious metals.

Beyond all of that, there are a multitude of negative headlines out there that could cause issues, and that of course drive money into gold for safety. With this in mind, I fully anticipate that gold will continue to be one of the better performers for the rest of the year, therefore I like buying breakouts.

For a look at all of today’s economic events, check out our economic calendar.

Metals Nearing Critical Momentum for New Parabolic Rally

While the US stock market has rallied over the past 5+ weeks, Gold has stalled near $1730 to $1740.  We issued a research post suggesting the GREEN Fibonacci Price Amplitude Arc was acting as major resistance and once that level is breached, we expect a big upside move in Gold.  Currently, Gold has reached just above the Green Price Amplitude Arc and this week may be a critical moment for both Gold and Silver in terms of a momentum base.

GOLD FUTURES WEEKLY CHART

Gold has continued to move high in a series of waves – moving higher, then stalling/basing, then attempting another move higher.  This recent base near $1740, after the deeper price rotation in February/March, confirms our 2018/2019 predictive modeling research suggesting that $1750 would be a key level in the near future.  Part of that research suggested once $1750 is breached, then a bigger upside move would take place targeting levels above $2400 – eventually targeting $3750.

April 25, 2020: Fibonacci Price Amplitude Arcs Predict Big Gold Breakout

This consolidation after the COVID-19 event near $1750 is a very real confirmation for our researchers that the upside breakout move is about to happen.  How soon?  It could begin to break out next week of the following week?  How high could it go?  Our upside target is $2000 to $2100 initially – but Gold could rally to levels near $2400 on this next breakout move.

SILVER FUTURES WEEKLY CHART

While Gold has been consolidating near $1740, Silver has exhibited an incredible upside price move after a very clear Flag/Pennant formation (highlighted in YELLOW on the chart below).  The current upside price rally in Silver appears as though it may breach the MAGENTA downward sloping trend-line and this breakout move may prompt a rally to levels near or above $21 over the next few weeks.

Eric Sprott is very excited about silver and miners. Also, he talks about the demand for physical delivery which is way out of whack and how something could finally give which would be metals go parabolic.

We’ve been suggesting that metals will transition into a moderate parabolic upside price trend as the global markets deal with concerns related to economic activity, debt, solvency, and continued operational issues.  For skilled technical traders, this setup in Metals may be a very good opportunity for skilled technical traders to establish hedging positions in ETFs or physical metals before the breakout really solidifies.

Concluding Thoughts:

Longer-term, we believe metals could continue to rally for quite a while, yet we understand skilled technical traders want to time entries to limit risks.  We believe skilled technical traders should consider hedging their portfolio with a moderate position in Metals/Miners at this time – allowing traders to trade the remaining portion of their portfolio in other sectors/stocks.

If the US/Global markets continue to struggle to move higher over the next 60 to 90+ days, metals/miners should continue to push higher – possibly entering a new parabolic upside price move.  The deep washout low in Silver was an incredible opportunity for skilled traders to jump into Silver miners and Silver ETFs at extremely low price levels.  Now, with Silver at $18.40, it’s time to start thinking about $21+ Silver and $2100+ Gold.

Please take a moment to visit www.TheTechnicalTraders.com/tti to learn more about our passive long term investing signals, Also, get our swing trading signals here www.TheTechnicalTraders.com/ttt.  I can’t say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Trader Ltd.

 

Silver Price Forecast – Silver Markets Break Major Handle

Silver markets have broken above the $18 level during early trading on Friday, which of course is a very bullish sign. At this point I think that the silver markets are going to go looking towards the $19 level beyond that, which is also a major resistance barrier. At this point, we are likely to continue seeing quite a bit of noise in this market, as silver is volatile under the best of circumstances. If we can break above the $19 level, then it opens up a move to the $20 level. The silver markets do tend to move in one dollar increments, so this makes perfect sense.

SILVER Video 01.06.20

At this point, the $18 level should step in and start to offer support on pullbacks, and most certainly the $17 level will. Keep in mind that silver is an industrial metal, so although it is bullish it also has that working against it. Gold is still the purest play when it comes to fear and is most certainly outperforming silver. Regardless, you cannot sell this market, and if you are looking at the industrial demand as something that will be picking up, then silver makes quite a bit of sense.

It is bullish regardless, and if we can break above the $19 level, we should see a significant surge higher. Obviously, the $20 level is extraordinarily important from a psychological standpoint, so that will probably come into play as well. With this, the market is likely to see a lot of volatility, but I look at pullbacks as an opportunity to pick up silver with value.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue to Press Gap

WTI Crude Oil

The West Texas Intermediate Crude Oil market initially fell during the trading session on Friday but turned around to show signs of strength again. The gap is sitting just above here and therefore it is likely that technical traders will trying to find a reason to push into this area. Filling the gap is a common trade, and clearly the fact that we continue to find buyers on dips suggests that we are going to eventually find the momentum necessary. The top of the gap is near $41, and I think that is about as far as this market can go.

Crude Oil Video 01.06.20

Brent

Brent looks similar, but it has not reached the exact bottom of the gap, so it may have a little bit more of a fight ahead of it. Ultimately though, I do think that the market will make a decision and try to take off to the upside. I like buying dips, lease for the short term and until we get some type of major change in attitude what I consider shorting. Going into the weekend, it looks like we are still trying to find plenty of buyers to finally push higher, but ultimately this is a lot of back and forth, simply waiting for the next catalyst to get things going. I do believe that the 50 day EMA comes into play in both of these markets, at least for dynamic support. Expect volatility, so keep your position size relatively small until we get some type of clarity in these markets.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Forecast – Natural Gas Markets Soften Into the Weekend

Natural gas markets initially tried to rally during the day on Friday, but you can see that we have pulled back a bit, reaching below the $1.80 level. There is a significant amount of support to the downside extending all the way to the $1.60 level though, so it is likely that we will continue to see buyers given enough time. With that in mind, I like the idea of looking for some type of bounce that I can take advantage of, but right now I do not see it. That is okay, we are heading into the weekend so it is difficult to imagine a scenario where traders would be willing to get overly bullish anyway. Ultimately, given enough time I do expect that we will see buyers coming back in but that is probably a story for next week.

NATGAS Video 01.06.20

At this point in time, a little bit of patience is probably needed. Ultimately, I do think that we are trying to form some type of “rounded bottom”, which is always an exceptionally long term and messy affair. Because of this, I think that the market is still very noisy, so therefore small position sizing will be crucial, but I do think that we will have a little bit more clarity somewhere during the week next week. In the short term, simply waiting for the setup is probably the best way going forward. Ultimately, there is not much to do rather than wait.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Forecast – Gold Markets Continue to Grind Higher

Gold markets have rallied a bit during the trading session on Friday as we continue to see a lot of concerns around the world. Furthermore, central banks continue to have the printing presses running at full tilt. Ultimately, this suggests that we should continue to see fiat currencies get devalued. The gold market as the natural place to go looking to protect yourself from falling value of currency, so I think we continue to see that factor into the buying to say the least. Furthermore, you have the concerns about the multitude of potential global headlines that could cause issues, and therefore it makes sense that people are using this as a way to protect themselves.

Gold Price Predictions Video 01.06.20

Looking at the chart, I do see a lot of resistance between the $1750 level and the $1760 level. If you can break above there, then the market is likely to go looking towards the $1800 level. Ultimately, the $1800 level is significant resistance, so if we do break above there then the market is free to go much higher over the longer term. That being said, it looks like we are still in the midst of trying to form some type of ascending triangle, and at this point even if we were to pull back from here, it is only going to end up being a buying opportunity. With all of the various concerns around the world when it comes to global trade and of course the pandemic, it is hard to imagine a scenario where gold does not rise over the longer term. The 50 day EMA underneath continues offer plenty of support as we have seen over the last couple of months.

For a look at all of today’s economic events, check out our economic calendar.

Oil Mixed As Traders Hope For Extension Of Current Production Cuts

Oil Video 29.05.20.

U.S. Domestic Oil Production Drops By 100,000 Barrels Per Day

Oil remains under some pressure as the EIA Weekly Petroleum Status Report showed that crude oil inventories increased by 7.9 million barrels per day (bpd).

Gasoline inventories decreased by 0.7 million bpd while distillate fuel inventories increased by 5.5 million bpd. In general, the report painted a picture of a rather weak demand for oil.

Meanwhile, the U.S. oil production declined from 11.5 million bpd to 11.4 million bpd. The pace of the domestic production decrease has slowed down but the downside trend is steady.

I’d note that the oil market did not experience any major sell-off after the inventory news because oil is trading at low levels, so bad news are already included in today’s prices.

The previous major downside move which brought the WTI May 2020 contract into the negative territory was caused by the fears of running out of oil storage. Now that such fears have been eliminated, oil will need serious downside catalysts to return back to sub-$30 levels.

Russia And Saudi Arabia Continue To Discuss The Extension Of Existing Oil Production Cuts

The potential extension of the existing oil production cuts is the main topic of this week.

According to earlier reports, Russian Energy Minister Alexander Novak discussed potential oil production cuts with Russian oil companies.

However, another report stated that Russia wanted to increase its oil production in July instead of sticking to existing production cuts.

A new Reuters report suggested that Saudi Arabia wants to keep existing oil production cuts until the end of the year.

The original OPEC+ deal called for production cuts of 9.7 million bpd in May – June, followed by production cuts of 7.7 million bpd until the end of the year.

If the existing production cuts are kept until the end of the year, the oil market will get significant support.

As usual in these discussions about production cuts, Russia’s position may be a problem.

A Reuters report stated that Russia’s leading oil company Rosneft had trouble with supplying its clients with oil due to production cuts and that it wanted to increase production after June.

The next OPEC+ meeting is scheduled for June 10 so we’ll soon learn whether Saudi Arabia and Russia reached consensus regarding production cuts.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Friday, May 29 – Gold at Yesterday’s High

The gold futures contract gained 0.09% on Thursday, as it extended its consolidation following bouncing off $1,700 support level on Wednesday. Gold has been trading within a downward correction after reaching new monthly high of $1,775.80 on Monday almost two weeks ago. Wednesday’s price action was quite bullish, but gold keeps extending over month-long consolidation, as we can see on the daily chart:

Gold is 0.6% higher today, as it gets back to yesterday’s high. Financial markets remain in risk-on mode, as stocks hover along their new medium-term highs. What about the other precious metals?: Silver gained 1.18% on Thursday and today it is 2.6% higher, platinum lost 1.14% and today is trading 0.4% higher. Palladium lost 1.61% yesterday and today it is 1.6% lower again.

The recent economic data releases have been confirming negative coronavirus impact on global economies. Today’s Personal Spending number release came out worse than expected. However, the Personal Income data was better than expected. The market will await today’s Fed Chair Powell speech at 11:00 a.m. We will also have a speech from President Trump today. Investors are now waiting for the Chicago PMI release at 9:45 a.m. There will also be Michigan Sentiment number release at 10:00 a.m.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, May 29

  • 5:00 a.m. Eurozone – CPI Flash Estimate y/y, Core CPI Flash Estimate y/y
  • 8:30 a.m. Canada – GDP m/m, RMPI m/m, IPPI m/m
  • 8:30 a.m. U.S. – Personal Spending m/m, Personal Income m/m, Core PCE Price Index m/m, Goods Trade Balance, Preliminary Wholesale Inventories m/m
  • 9:45 a.m. U.S. – Chicago PMI
  • 10:00 a.m. U.S. – Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations
  • 11:00 a.m. U.S. – Fed Chair Powell Speech

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Silver Price Daily Forecast – Silver Gets To New Highs

Silver Video 29.05.20.

Silver Continues Its Upside Move

Silver managed to get above the resistance at $17.50 and gained upside momentum. The move is supported by gold price upside and weaker U.S. dollar.

Gold has managed to settle above $1700 per ounce as the increase in U.S. – China tensions drives demand for safe haven assets.

Gold/silver ratio has firmly settled below 100 and continues to decline. Before the coronavirus crisis, gold/silver ratio was below 90, so a possible return to pre-crisis levels could be very beneficial for silver.

The U.S. dollar continues to lose ground against a broad basket of currencies despite its safe haven status, and the U.S. Dollar Index has already tested the 98 level. Weaker U.S. dollar is bullish for silver as it makes it cheaper for buyers who have other currencies.

In the near term, silver’s price action will heavily depend on the global market reaction to the upcoming news conference of the U.S. President Donald Trump where he is set to unveil new measures against China.

If the markets will be in a bearish mood following the news conference, the precious metal segment may gain additional upside momentum as investors will increase purchases of safe haven assets.

Technical Analysis

silver may 29 2020

Silver managed to get above $17.50 and has good chances to develop significant upside momentum. The recent peak in RSI is yet to be reached, so silver should not have problems with momentum given the right catalysts.

If this upside move continues, the next resistance is located at $18.15. In case silver manages to settle above $18.15, it will gain additional upside momentum and head towards resistance at $19.00.

This level will likely serve as a material obstacle on silver’s way up since it’s the pre-crisis high of 2020. In fact, silver has tried to test the $19.00 level two times this year, and each such attempt failed. The last time silver traded above $19.00 was back in September 2019.

On the support side, silver will continue to get significant support near $17.00. The support at this level was so strong that a move below it may signal a change of a near-term trend for silver.

In case silver gets below $17.00, the next support area is located between pre-crisis levels at $16.50 and the 20 EMA at $16.60.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Trump’s Announcement, China’s Response Sets the Tone

Gold is trading higher on Friday in reaction to lower Treasury yields and a plunge below long-term support by the U.S. Dollar. The catalysts behind gold’s strength are lingering U.S.-China trade tensions as traders cautiously await Washington’s response to the Chinese parliament’s approval of a national security law for Hong Kong.

At 12:26 GMT, August Comex Gold is trading $1745.60, up $17.30 or 1.00%.

The price action suggests that traders are betting against the U.S. Dollar ahead President Trump’s response to China’s tightening control over Hong Kong, which could worsen tensions between the two over the financial hub.

Traders fear that new U.S. sanctions against China might escalate into something more serious. If Trump announces more tariffs, for example, then look for retaliation by China. Both moves will put pressure on the U.S. and Chinese economies at a time when they are just starting to show signs of recovering from the impact of the coronavirus pandemic.

Moh Siong Sim, a currency strategist at Bank of Singapore, doesn’t expect Trump to come down too hard on China because of the state of economy. He said, “You can never quite predict Trump. But I think this year it’s really difficult for him to do tough action.”

Trump to Hold Press Conference

U.S. President Donald Trump is expected to hold a news conference on China later on Friday as his administration moves to pressure Beijing over its treatment of Hong Kong.

“People will be looking for guidance to see whether that could trigger further escalation between the two largest economies. After Trump’s speech, people will also be keen to see China’s response,” said Bank of China International analyst Xiao Fu.

“Even with many economies reopening, the economic status is still quite weak. So with this new geopolitical tension it means that recovery in many parts of the world can take longer, which could lift gold prices.”

Daily Forecast

The direction of the gold market the rest of the session on Friday will be determined by Trump’s announcement. A soft response by Trump to China could help the U.S. Dollar recover, pressuring gold prices.

But a tough response that garners a swift retaliation from China will likely drive the U.S. Dollar lower against the major currencies, which will be supportive for gold.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Mixed Ahead Of Trump’s News Conference On China

All Eyes On Trump’s News Conference

U.S. – China relations will be in the spotlight today as the U.S. President Donald Trump is set to unveil the country’s response to the new Hong Kong security law.

The worst-case scenario for the market is a decision to revoke Hong Kong’s special status. China has already warned that it will take any necessary measures if U.S. proceeds with its plans to put more pressure on China.

In turn, Hong Kong stated that the loss of its special status could pose problems for the U.S. economy.

It remains to be seen which measures will be chosen by the U.S. as it has to carefully weigh the impact of any additional pressure on China at a time when the world economy starts to recover from the unprecedented coronavirus crisis.

Personal Income Is Up 10.5% In April

U.S. has just released another portion of economic data.

Personal Income was up 10.5% in April compared to analyst consensus which called for a decline of 6.6%. Most likely, the huge government stimulus is the reason for this development.

Personal Spending was down 13.6% compared to analyst consensus which projected a decline of 12.6%. Not surprisingly, Personal Spending was hit by virus containment measures as consumers had to stay at home.

S&P 500 are flat following the release of new economic reports. Most likely, the market will focus on the above-mentioned press conference and the potential U.S. moves against China as they could have a material long-term impact on the world economy.

Oil Rally Takes A Pause

EIA Weekly Petroleum Status Report confirmed the data published in the API Crude Oil Stock Change report. According to EIA, oil inventories increased by 7.9 million barrels per day.

This means that the pace of the oil demand recovery is not as robust as previously hoped. This data has a direct impact on the oil market and oil-related stocks, but it also provides a chance to evaluate the pace of economic recovery since energy demand and economic activity are closely linked.

For a look at all of today’s economic events, check out our economic calendar.

 

Oil Price Fundamental Daily Forecast – Worsening US-China Relations Likely Source of Impending Volatility

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Friday with prices dragged down by weak U.S. fuel demand, fears of a second wave of coronavirus cases in South Korea and a worsening in U.S.-China relations. Nonetheless, the markets remain on track for a hefty monthly gain.

At 11:55 GMT, July WTI crude oil is trading $32.85, down $0.86 or -2.55% and August Brent crude oil is at $35.28, down $0.75 or -2.08%.

Both futures contracts are also in a position to post their first weekly loss after four consecutive weeks of gains that leave them set for the biggest monthly gains in years thanks to production cuts and optimism over Chinese-led demand recovery, analysts said.

WTI is on track for a record monthly gain of 72% in May, with Brent set for a 35% increase that would represent its strongest monthly rise since March 1999, Reuters said.

There are headwinds, however, which is likely the reason behind this week’s abrupt halt of the current rally.

“The global reaction to China’s move to propose new security laws for Hong Kong continues to increase, while there’s a score of new COVID-19 cases in South Korea,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugend.

U.S. President Donald Trump is due to announce his response to the situation in Hong Kong later on Friday. His announcement is likely to be the source of volatility later in the session.

Despite US-China Issues, There are Positives

Thursday’s data from the Energy Information Administration (EIA) showed that U.S. crude oil and distillate inventories rose sharply last week. Fuel demand remained slack even as various states lifted travel restrictions they had imposed to curb the coronavirus pandemic, analysts said.

However, storage in Cushing, Oklahoma, the main delivery point in WTI, decreased by 3.4 million barrels, and refinery utilization also rose to 71% from 69%.

Additionally, producers have scaled back output at a record pace as plunging prices made operation uneconomical. OPEC and its oil-producing allies agreed to the steepest production cut in history during an extraordinary, multi-day meeting in April. Then, earlier in May, Saudi Arabia said that, beginning June 1, it would voluntarily cut an additional 1 million bpd, on top of its portion of the cuts agreed to by OPEC+. Kuwait and UAE were among the other cartel members that followed suit and said they would also exercise additional cuts.

Daily Forecast

The wild price swings seem to be behind us, but the market is still vulnerable to a steep retracement of the recent rally. Traders are now waiting for the next OPEC+ meeting to set the longer-term tone. However, over the short-run Trump’s announcement regarding China’s influence in Hong Kong is likely to set the tone. We’re looking for a near-term correction of the recent rally.

For a look at all of today’s economic events, check out our economic calendar.

Will the Fed Trigger Inflation This Time, Boosting Gold?

During Great Recession, many people feared that the Fed’s quantitative easing would trigger high inflation, or even hyperinflation. As we know, it didn’t happen. Why? Well, the main reason is that the Fed created money – that’s true – but in the form of bank reserves. And this is a very specific medium of exchange that does not enter the real economy like cash, but stays within the interbank market. You see, bank reserves are a special kind of money used only between commercial banks and central bank and between commercial banks themselves. So, larger supply of reserves does not therefore automatically translate into higher prices.

This can happen only if these additional reserves motivate commercial banks to expand their lending. Investors should remember that in the contemporary banking model based on the fractional reserve banking, the bank deposits account for the majority of the money supply. And when the bank deposits are created? They are created whenever banks grant loans.

As the chart below shows, the growth rate of credit supply was falling during Great Recession, reaching even negative values for some time. Why? For two reasons. First, American households have deleveraged, i.e., they decided to pay back the debts they had, so they were not interested in taking new loans. Second, as the name suggests, the global financial crisis was, well, financial crisis to a large extent. It means that banks were severely hit and they were left with a lot of toxic assets. So, banks themselves were not interested in granting new loans, rather they cleaned their balance sheets. Please also remember that the supervisors tightened the bank capital requirements in the aftermath of the Lehman Brothers’ collapse.

Chart 1: US bank credit (annual % change) from January 2007 to December 2010.

However, this crisis is different. The Fed and other central banks did not only introduce quantitative easing, but they also implemented other programs which can turn out to be more inflationary. For example, the US central bank will lend, under the Term Asset-Backed Securities Loan Facility, to holders of certain AAA-rated securities backed by newly and recently originated consumer and small business loans. Moreover, the new Main Street Lending Program set by the Fed in April works like this: commercial banks grant loans to small and medium companies employing up to 10,000 workers or with revenues of less than $2.5 billion, and then they retain 5 percent of the loan on their balance sheets but sell the remaining 95 percent of the loans to the Main Street facility created by the Fed.

All these programs aim to support the flow of credit to employers, consumers, and businesses, encouraging commercial banks to grant new loans to companies that have suffered as a result of the economic lockdown. Moreover, the financial sector has not been hit initially by the coronavirus crisis, while the supervisors eased reserve and capital requirements for banks. The demand for loans from entrepreneurs is also vivid. All this means that the pace of growth of credit and money supply may be higher than during the Great Recession. Indeed, as the chart below shows, they accelerated in March and April.

Chart 2: The annual % change of the US bank credit (green line) and M2 money supply (red line) from January 2019 to April 2020.

 

Summing up, the unconventional monetary policy implemented in the aftermath of the Great Recession did not spur inflation. However, this time may be different. To be clear, we are not saying that we will see hyperinflation in the US. That’s still very unlikely. What we mean is that the commercial banks are – so far – significantly more eager to grant new loans. So, the resulting increase in money supply should create higher inflation after some time, if other factors remain unchanged.

In other words, this crisis is more likely to result in stagflation than the Great Recession, especially as economy faces disruptions in the supply chains. Indeed, please take a look at inflation expectations derived from the 5-year inflation-adjusted Treasuries displayed in the chart below – as you can see, the market does not expect deflation now, as it did in the aftermath of the previous economic crisis.

Chart 3: US 5-year breakeven inflation rate from January 2007 to April 2020

Given that gold is considered to be an inflation hedge, the higher odds of inflation are fundamentally positive for the gold prices. It does not mean that disinflation or deflation would be negative for the yellow metal, as it could shine nevertheless during the crisis of any kind, but increased chances for stagflation should be an additional factor that could encourage more investors to buy gold.

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Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Brent Oil and Gold With Interesting Setups

In today’s analysis, we will focus on commodities: Gold and Oil. In the previous months, Gold was climbing has been mostly moving higher and oil has been declining. Despite the most recent rise in the price of Brent and a small decline in the price of gold, we think that we are about to see a comeback to the dominant trend. In both cases, gold has a nice bullish signal and oil is drawing rather bearish pattern.

First, lest start with Brent Oil, where its price has doubled since the end of April. In the last two weeks, the upswing stopped and the price is creating a head and shoulders pattern. The price is creating the right shoulder of the pattern. The main up trendline was already broken but the neckline is still intact. In this case, the price breaking the neckline can be a nice selling opportunity.

The second instrument is Gold, where the price is currently breaking the upper line of the flag formation. The flag was a correction in the bullish trend, so it promotes another wave up. The real, legitimate buy signal will be triggered, when the price will break the horizontal resistance at 1735 USD/oz.

The last instrument is not a commodity but the USDJPY pair which is definitely worth mentioning. This Friday is crucial for this pair as the price has managed to escape from the recent sideways trend. Sellers broke two up trendlines and the lower line of the rectangle pattern. Currently, we are testing this last support as a resistance. The test so far is positive for sellers, which may indicate a willingness for a further slide. Sentiment here is negative.

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Natural Gas Price Prediction – Prices Fall Following Larger than Expected Inventory Build

Natural gas prices dropped nearly 3% on Friday as inventories built more than expected. Strong production despite continued declines in rig count, has kept natural gas prices on their heels. The weather is expected to remain warmer than normal for most of the United States which should increase cooling demand. Softer than expected Durable goods order likely reduced natural gas demand. Orders for durable goods, plunged 17.2% in April after dropping 16.6% in March.

Technical Analysis

Natural gas prices dropped on Thursday declining nearly 3% but bouncing near support which is an upward sloping trend line that comes in near 1.82. A close below this level would likely see a decline to the June contract lows at 1.60. Resistance on natural gas is seen near the 10-day moving average of 1.89. The 10-day moving average recently crossed below the 50-day moving average which means that a short term downtrend is now in place. Short term momentum is negative as the fast stochastic generated a crossover sell signal. The current reading of the fast stochastic is 5, well below the oversold trigger level of 20 which could foreshadow a correction.

Inventories Rise More than Expected

Natural gas in storage was 2,612 Bcf as of Friday, May 22, 2020, according to the EIA. This represents a net increase of 109 Bcf from the previous week. Expectations were for a 107 Bcf build according to survey provider Estimize. Stocks were 778 Bcf higher than last year at this time and 423 Bcf above the five-year average of 2,189 Bcf. At 2,612 Bcf, total working gas is within the five-year historical range.

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