【Market Evening】Oil hits new high near $75 on demand rise; Gold slips on dollar strength

Gold slips on dollar strength 

Gold prices edged lower on Wednesday due to a stronger dollar as investors look forward to the outcome of the U.S. Federal Reserve meeting for hints on tapering of economic support measures.

Spot gold fell 0.02% to $1857.83 per ounce, silver rose 0.33% to $27.710 per ounce by 18:00 (GMT+8).

“Gold has been down for a few days and this reflects in the building anticipation that (the Fed’s) tapering of QE might start faster than the market is currently expecting,” DailyFX currency strategist Ilya Spivak said.

“Gold has entered the next leg down. Immediate support at this stage is around $1,850. If we can break that with the help of the (Fed meet) over the next 24 hours, gold might head towards $1,800.”

The gold market still has a lot of potential for higher prices. 

Michael Moor, creator of Moor Analytics, said that he sees more potential for higher oil prices than gold. He added that after two months of gains, the gold market is looking technically exhausted is due for a correction.

"We basically broke below a couple of different formations last week, and that's what made the push down to $1,855," he said.

Dollar holds near one-month high

The dollar held near a one-month high against a basket of currencies on Wednesday as investors tried to ascertain if the Federal Reserve might alter the language on its stimulus following a recent jump in U.S. inflation.

The US dollar index fell 0.01% to 90.49 by 18:00(GMT+8).

The Federal Reserve is widely expected to acknowledge the first conversations among its policymakers about when and how fast to pare back the massive bond-buying program launched in 2020 when it concludes a policy meeting later in the day.

Some market players also noted the dollar could rise by default as other major currencies appear to be losing momentum.

The Euro-to-Dollar exchange rate has dug in its heels above 1.21 in recent days, although its path higher is overshadowed this week by risks stemming from Federal Reserve (Fed) monetary policy.

“A fall through the next lower 1.2052 mid-May low on a daily chart closing basis would probably trigger a deeper retracement to the 1.1994/86 band of support (mid-March highs and April 22 as well as May lows) which should ideally hold the downside,” says Axel Rudolph, a senior technical analyst at Commerzbank.

“Only a currently unexpected bullish reversal above last week’s high at 1.2218 would re-engage the 1.2266 end of May high, which guards the 1.2349 January high,” Rudolph says.

"While there may be scope for some disappointment for the USD on the event, we would expect this to be short-lived. We see scope for EUR/USD to test 1.20 this summer in anticipation that the tapering discussion at the Fed will soon begin in earnest," says Jane Foley, a senior FX strategist at Rabobank.

"ECB President Lagarde made it clear last week that there will be no change in the central bank’s asset purchase programme just yet. In terms of inflation risk, this has historically run cooler in the Eurozone than in the US," Foley adds.

Oil hits new high near $75 on demand rise

Oil extended its run of gains on Wednesday, climbing towards $75 a barrel to its highest since April 2019, supported by a recovery in demand from the pandemic and a drop in U.S. crude inventories.

U.S. West Texas Intermediate (WTI) crude was at $71.992 a barrel, fell 0.24%, Brent was up to $73.661 a barrel, fell 0.18% by 18:00(GMT+8).

The American Petroleum Institute reported U.S. crude inventories fell 8.5 million barrels, two market sources said, more than analysts forecast. 

“Demand growth is outpacing supply and will continue to do so over the coming months,” said Stephen Brennock of oil broker PVM.

Brent has risen 44% this year, supported by supply cuts led by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, and a demand recovery expected to gather pace in the second half. 

Despite some easing of last year’s record output cuts made when the pandemic took hold, OPEC+ is still withholding millions of barrels of daily supply from the market.

At the same time, the prospect of an imminent rise in Iranian oil exports looks less likely, analysts said. Indirect talks between Tehran and Washington on resuming the 2015 nuclear accord resumed in Vienna on Saturday.

“Ongoing efforts to revive the Iranian nuclear deal have so far failed to bear any fruits,” PVM’s Brennock said.

Michael Moor, creator of Moor Analytics, said  that crude oil has managed to hold above critical support and is just starting a more extensive run. He said that he has been bullish on oil since July 2020, after prices rebounded from falling into negative territory for the first time in history. 

"We are just at the start of the move that I expect will take us to $110 an ounce," he said. "It's not going to happen in the next month, but I see another $50 move in oil in the next eight to 12 months."

Asian shares mixed 

Asian-Pacific shares were mixed in quiet trading Wednesday ahead of a U.S. Federal Reserve meeting that may give clues on what lies ahead with its massive support for markets.

Nikkei 225 fell 150.29 points or 0.51%, close at 29,291.01.

S&P/ASX 200 rose 6.70 points or 0.091% to close at 7,386.20.

Hang Seng Index fell 201.69 points or0.70% to 28,436.84.

South Korea's Kospi rose 20.05 points or 0.62% to 3,278.68.

Taiwan capitalization weighted stock index fell 63.43 points or 0.37% to 17,307.86.

European stock opened mixed on Wednesday, At press time: 

FTSE 100 Index rose 6.42 points or 0.087% at 7,178.79.

Germany DAX 30 fell 43.40 points or 0.28% at 15,686.12.

France CAC 40 rose 0.71 points or 0.011% at 6,640.23.

Krafton Inc., the company behind hit mobile game PlayerUnknown’s Battlegrounds, filed to raise as much as 5.6 trillion won ($5 billion) in a South Korean initial public offering that’s likely to be the country’s largest ever.

The gaming company will sell more than 10 million shares at 458,000 won to 557,000 won apiece, Pangyo-based Krafton said in a filing Wednesday. The top of the range exceeded general market expectations and would grant Krafton a market capitalization of 28 trillion won, based on the number of common shares. Krafton plans to finalize the price July 9 and list on July 22.

Michael Burry on Tuesday warned of the biggest market bubble in history, suggesting that his concerns about rampant speculation only grew during his 10-week hiatus from Twitter.

"People always ask me what is going on in the markets," the investor tweeted. "It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude.

The hashtag was likely a reference to a famous saying in investing: "Bulls make money, bears make money, but pigs get slaughtered." Burry has repeatedly told investors that they're being too greedy, speculating wildly, shouldering too much risk, and chasing unrealistic returns.

The Scion Asset Management chief deleted his Twitter profile in early April after sounding the alarm on Tesla stock - which he's short - as well as GameStop, bitcoin, dogecoin, Robinhood, SPACs, inflation, and the broader stock market. He resumed tweeting on Monday.

Focus Tonight

20:30(GMT+8): Canada Core Inflation Rate YoY (MAY), Forecast: 2.4%, Previous: 2.3%;

22:30(GMT+8): United States EIA Crude Oil Imports Change (11/JUN), Previous:0.62M;