As gold hits new heights, oil prices sink
The oil price has fallen below $100 hitting 16 month lows. If one had fallen asleep on the night of Thursday 31st May and awoke on the morning of Saturday June 2nd a person could have been forgiven for feeling that someone had turned the world on its head (apart from feeling incredibly refreshed and unusually full of beans) as key market positions had changed, and changed dramatically.
On the Thursday the spot gold price was somewhere near $1,550 per ounce and a barrel of WTI crude was selling for $92 and change. On the Saturday morning that you awoke the gold price had sliced through two huge (psychologically important the traders call it) resistance levels – of $1,580 and $1,600 – to close at $1,629 per ounce on Friday, May 31, $94 above its intra-day low of $1,535 on May 30... and what's happening with oil you would squeal as you threw your smart phone at the kettle... well, WTI oil prices dipped to about $86 a barrel, ending May with a record plunge of 16 percent in a month – oil’s biggest monthly loss since 2008.
Add to the mix the S&P 500 index falling 2.5 percent, the Dow declining 2.2 percent, and Nasdaq shedding 2.82 percent mirroring markets in Europe with the FTSE in London off 1.14 percent and Germany’s Dax and France’s Cac-40 off 3% and 2% respectively.
So, what happened... you may shout as you consider going back to bed... well it wasn't what happened, it's what's happening. The US announced disappointing payrolls data. Analysts had been expecting an increase of 165,000 jobs but US employers added just 69,000 jobs in the month of May (that was even less than most pessimistic forecasts), the smallest net increase in non-farm payrolls in a year, which raised the likelihood of a fresh round of quantitative easing by the US Federal Reserve.
As well as that, the US government revised downwards the payrolls figures it had announced in the previous two months – from an original estimate of 115,000 to 77,000 in April, and from 154,000 to 143,000 in March.
Spain had already rocked the markets showing it was in far deeper financial trouble than earlier thought, putting Europe on the brink of recession, but now the markets were spooked and global stocks plunged across the board and investors flew to the safety of gold, suggesting the yellow metal was once again winning back its safe haven status.
Of course in our globalised markets oil is the winner and loser as the world's trajectory changes. Brent surged in March to $128 a barrel, the highest since 2008, as increased concern over the loss of Iranian oil due to tighter sanctions combined with supply hitches elsewhere. However Saudi Arabia, the top oil exporter, saw a high oil price as counter productive and has been raising output saying repeatedly it wanted prices of around $100 per barrel.
The kingdom, OPEC's biggest producer, raised output to 10.1 million barrels per day in May, its highest in decades. Overall OPEC oil supply is at the highest since 2008.
Coupled with the oil gush onto the market US crude inventories rose more than expected last week to hit their highest level since July 1990 and with Germany, France and the UK all posting meagre growth prospects, oil paid the price.