Analys

Gold outlook 2019 – recovery expected to continue

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7 år sedan

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29 januari, 2019

Gold staged a recovery late in 2018. The yellow metal has recovered most of its losses since June 2018. A collapse in speculative positioning in gold futures drove prices down in the second half of the year, sentiment toward gold is clearly recovering in recent weeks. We expect the recovery to continue as many risks that were being ignored by the market start to get priced-in to gold. Our base case scenario is for gold to reach close to US$1370/oz by year end.

Figure 1: Gold price forecast

Source: WisdomTree Model Forecasts, Bloomberg Historical Data, data available as of close 31 December 2018. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.

Approach

Using the framework we outlined in our paper Gold outlook: gold to flatline out to June 2019 in the absence of shocks, we apply our views on inflation, exchange rates, interest rates and investor sentiment to try to project where gold will be by the end of the year.

Speculative positioning drives recovery

In 2018 speculative positioning fell to the lowest level since 2001 briefly before recovering very late in the year. Judging by flows into gold Exchange Traded Products, sentiment toward the metal is clearly recovering. Asset market volatility in the final weeks of the year was one of the main catalysts behind the recovery in gold positioning. The S&P 500 lost 14% and Brent oil fell by 35% in the final quarter of 2018. Moreover, the volatility of both benchmarks has risen substantially.

A government shutdown in the US acted as a jolt to investors to remind them that the world’s engine of growth (at least in recent times) is not invincible. Meanwhile concerns around China’s slowing growth rate also led investors to become less optimistic about cyclical assets.

Fed to continue to tighten policy

We expect the Federal Reserve (Fed) to raise rates twice in 2019 (50 basis points), in line with the dot-plots in the central bank’s recent economic forecasts . That’s also in line with consensus forecasts by economists, however, Fed fund futures are not pricing in any rate increases for 2019. We side with the Fed’s guidance as we believe that economic data from the country is strong enough and labour markets are tight enough for the central bank to continue to raise rates. However, we acknowledge the risk to rates is on the downside – which in general should play to the upside for gold prices.

US Treasury bond yield curve to invert

Although we expect a total of 50 basis points increase in policy rates by Q4 2019, we think that 10-year bond yields will only increase around 25 basis points to 3.0% in that time horizon. 2-year bond yields are likely to capture more of the gains in policy rates, but further out in the curve, we are likely to see less yield increases. That’s because the Fed’s holding of a large stock of bonds is likely to hold yields back from rising too aggressively. Also, recent tax cuts are likely to have the most impact in the very short term. As the growth impact peters out over longer horizons, the uplift to yields at the longer end of the curve will be less than at the short end. Although many people see yield curve inversion as a financial signal of impending economic downturn, we believe that an inversion can occur for the less benign reasons outlined above and so it is not necessarily a precursor to an economic recession. If anything, we believe the Fed will err on the side of dovishness, as it will be reluctant to drive policy too far from other central banks. In fact, Fed fund futures indicate that the market thinks that the Fed will stop raising rates altogether this year. That could prove to be supportive for gold prices over the course of 2019.

Figure 2: Nominal US 10 year Bond Yields forecast

US Dollar appreciation to be short-lived

While the Fed remains the only major central bank raising interest rates over in the first half of the year, we expect the US Dollar to continue to appreciate, especially as judging by Fed fund futures, the market is currently not expecting further tightening. However, as other major central banks – the European Central Bank, Bank of Japan, Bank of England for example start to think about policy normalisation, we could see interest rate differentials narrow and the US Dollar weaken. Additionally, with growing indebtedness in the US – exacerbated by recent tax cuts – we expect a depreciation in the US Dollar.

Figure 3: US Dollar Exchange Rate Forecast

Inflationary pressures to persist, but remain contained by Fed’s policy

US consumer price index (CPI) inflation peaked at 2.9% in July 2018 and declined to 2.2% in November 2018. Volatile energy prices were responsible for a large part of the rise and decline. We expect the Fed’s policy tightening to continue to keep demand-driven inflation in check, but a recovery in oil prices will likely place upward pressure on inflation at the headline level. We expect a small increase in inflation to 2.3% by year-end.

Annons

Figure 4: Consumer Price Index inflation forecast

What will help sentiment toward gold improve?

Summarising the monetary/economic drivers of gold – small increases in interest rates, minor appreciation followed by depreciation of the US Dollar and inflation moving marginally higher – are not going to move the dial for gold in a big way. We believe that that gold prices will end the forecast period higher mainly as a result of sentiment towards gold continuing to move out of a depressed state. This process had started already in the final week of 2018 as most markets displayed excessive volatility. We have had multiple bouts of equity market volatility in 2018, but for most part developed world equities have snapped back. That does not guarantee resilience in the face of the next shock. We note that the last time speculative positioning in gold hit levels as low as they did in 2018 was in 2001 – the year when an Argentine debt crisis was brewing, and an overvalued technology sector was imploding. Gold reacted to the stress scenario but with latency. Gold prices rose 25% in 2002 (compared to 2% in 2001).

There are other risks, that could be supportive for gold as historically a safe haven asset, which could drive positioning in gold futures higher:

No deal Brexit– The UK’s prime minister appears to have insufficient support for the terms of withdrawal from the EU that she has been responsible for negotiating. Although she survived a vote of no confidence from her own party, it clear that the proposal is detested by leave and remain MPs alike. Renegotiating the terms of withdrawal appear impossible at this stage and so it is difficult to see how either side will be appeased by the current deal. We believe the most likely outcome will be for some form of extension beyond the March 30th deadline, however, there is a risk that doesn’t happen and there would be` no withdrawal deal in place. Leaving the EU in such an uncertain manner is likely to be very disruptive for both the UK and EU. Even if there is an extension to the deadline, uncertainty will linger, which will support demand for haven assets.
Trade-wars – Our working assumption is that rising protectionism in the US is not going to damage global economic demand. In fact, there are signs that the rift between the US and China is beginning to thaw. However, we have seen similar signs before which have been followed by a deterioration of the relationship. If tit-for-tat protectionist measures escalate, the market could be driven into a risk-off mindset.
The US government is currently shut down as President Trump vies congress to fund his border wall with Mexico. The risk of the standoff becoming prolonged could support demand for haven assets. Indeed, even if the government reopens soon, the risk of the Trump administration continuously using the threat of shutdowns as a strategy to gain leverage over congress is likely to hurt investor confidence in cyclical assets.

In our forecast, we bring back speculative positioning in gold futures to levels consistent with what we have seen in the past five years.

Figure 5: Gold futures speculative positioning

Combining the monetary, economic and sentiment driven factors affecting gold, we believe gold will reach close to US$1370/oz by the end of this year.

Alternative scenarios

We have also developed alternative scenarios for gold as summarised below. Most of the sensitivity comes from our measure of sentiment, speculative positioning. But even in our bear case, we increase positioning into positive territory. In our bull case scenario, we assume the Fed will allow the economy to run hot, only raising rates once, which will put less pressure on bond yields to rise, aid US Dollar depreciation and keep inflation elevated at 2.9%. In the bear case, conversely, we assume the Fed acts more hawkishly and has more impact on the longer bond yields. The US Dollar appreciates as the Fed surprises the market with its hawkishness.

Conclusion

In our base case scenario, we expect gold prices to rise close to US$1370/oz by Q4 2019, mainly as a result of speculative positioning in the futures market being restored. Some US Dollar depreciation and small gains in inflation will also aid gold’s rise.

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TACO (or Whatever It Was) Sends Oil Lower — Iran Keeps Choking Hormuz

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4 veckor sedan

den

24 mars, 2026

Redaktionen

Wild moves yesterday. Brent crude traded to a high of $114.43/b and a low of $96.0/b and closed at $99.94/b yesterday.

Bjarne Schieldrop, Chief analyst commodities, SEB

US – Iran negotiations ongoing or not? What a day. Donald Trump announced that good talks were ongoing between Iran and the US and that the 48 hour deadline before bombing Iranian power plants and energy infrastructure was postponed by five days subject to success of ongoing meetings. Iranian media meanwhile stated that no meetings were ongoing at all.

Today we are scratching our heads trying to figure out what yesterday was all about.

Friends and family playing the market? Was it just Trump and his friends and family who were playing with oil and equity markets with $580m and $1.46bn in bets being placed by someone in oil and equity markets just 15 minutes before Trump’s announcement?

Was Trump pulling a TACO as he reached his political and economic pain point: Brent at $112/b, US Gas at $4/gal, SPX below 200dma and US 10yr above 4.4%?

Different Iranian factions with Trump talking with one of them? Are there real negotiations going on but with the US talking to one faction in Iran while another, the hardliners, are not involved and are denying any such negotiations going on?

Extending the ultimatum to attack and invade Kharg island next weekend? Or, is the five day delay of the deadline a tactical decision to allow US amphibious assault ships and marines to arrive in the Gulf in the upcoming weekend while US and Israeli continues to degrade Iranian military targets till then. And then next weekend a move by the US/Israel to attack and conquer for example the Kharg island?

We do not really know which it is or maybe a combination of these.

We did get some kind of TACO ydy. But markets have been waiting for some kind of TACO to happen and yesterday we got some kind of TACO. And Brent crude is now trading at $101.5/b as a result rather than at $112-114/b as it did no the high yesterday.

But what really matters in our view is the political situation on the ground in Iran. Will hardliners continue to hold power or will a more pragmatic faction gain power?

If the hardliners remain in power then oil pain should extend all the way to US midterm elections. The hardliners were apparently still in charge as of last week. Iran immediately retaliated and damaged LNG infrastructure in Qatar after Israel hit Iranian South Pars. The SoH was still closed and all messages coming out of Iran indicated defiance. Hardliners continues in power has a huge consequence for oil prices going forward. The regime has played its ’oil-weapon’ (closing or chocking the Strait of Hormuz). It is using it to achieve political goals. Deterrence: it needs to be so politically and economically expensive to attack Iran that it won’t happen again in the future. Or at least that the US/Israel thinks 10-times over before they attack again. The highest Brent crude oil closing price since the start of the war is $112.19/b last Friday. In comparison the 20-year inflation adjusted Brent price is $103/b. So Brent crude last Friday at $112.19/b isn’t a shockingly high price. And it is still far below the nominal high of $148/b from 2008 which is $220/b if inflation adjusted. So once in a lifetime Iran activates its most powerful weapon. The oil weapon. It needs to show the power of this weapon and it needs to reap political gains. Getting Brent to $112/b and intraday high of $119.5/b (9 March) isn’t a display of the power of that weapon. And it is not a deterrence against future attacks.

So if the hardliners remain in power in Iran, then the SoH will likely remain chocked all the way to US midterm elections and Brent crude will at a minimum go above the historical nominal high of $148/b from 2008.

Thus the outlook for the oil price for the rest of the year doesn’t depend all that much of whether Trump pulls a TACO or not. Stops bombing or not. It depends more on who is in charge in Iran. If it is the hardliners, then deterrence against future attacks via chocking of the SoH and high oil prices is the likely line of action. It is impacting the world but the Iranian ’oil-weapon’ is directed towards the US president and the the US midterm elections.

If a pragmatic faction gets to power in Iran, then a very prosperous future is possible. However, if power is shifting towards a more pragmatic faction in Iran then a completely different direction could evolve. Such a faction could possibly be open for cooperation with the US and the GCC and possibly put its issues versus Israel aside. Then the prosperity we have seen evolving in Dubai could be a possible future also for Iran.

Annons

So far it looks like the hardliners are fully in charge. As far as we can see, the hardliners are still fully in control in Iran. That points towards continued chocking of the SoH and oil prices ticking higher as global inventories (the oil market buffers) are drawn lower. And not just for a few more weeks, but possibly all the way to the US midterm elections.

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Oil stress is rising as the supply chains and buffers are drained

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1 månad sedan

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17 mars, 2026

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A brief sigh of relief yesterday as oil infra at Kharg wasn’t damaged. But higher today. Brent crude dabbled around a bit yesterday in relief that oil infrastructure at Iran’s Kharg island wasn’t damaged. It traded briefly below the 100-line and in a range of $99.54 – 106.5/b. Its close was near the low at $100.21/b.

No easy victorious way out for Trump. So no end in sight yet. Brent is up 3.2% today to $103.4/b with no signs that the war will end anytime soon. Trump has no easy way to declare victory and mission accomplished as long as Iran is in full control of the Strait of Hormuz while also holding some 440 kg of uranium enriched to 60% and not far from weapons grade at 90%. As long as these two factors are unresolved it is difficult for Trump to pull out of the Middle East. Naturally he gets increasingly frustrated over the situation as the oil price and US retail gas prices keeps ticking higher while the US is tied into the mess in the Middle East. Trying to drag NATO members into his mess but not much luck there.

When commodity prices spike they spike 2x, 3x, 4x or 5x. Supply and demand for commodities are notoriously inflexible. When either of them shifts sharply, the the price can easily go to zero (April 2022) or multiply 2x, 3x, or even 5x of normal. Examples in case cobalt in 2025 where Kongo restricted supply and the price doubled. Global LNG in 2022 where the price went 5x normal for the full year average. Demand for tungsten in ammunition is up strongly along with full war in the middle east. And its price? Up 537%.

Why hasn’t the Brent crude oil price gone 2x, 3x, 4x or 5x versus its normal of $68/b given close to full stop in the flow of oil of the Strait of Hormuz? We are after all talking about close to 20% of global supply being disrupted. The reason is the buffers. It is fairly easy to store oil. Commercial operators only hold stocks for logistical variations. It is a lot of oil in commercial stocks, but that is predominantly because the whole oil system is so huge. In addition we have Strategic Petroleum Reserves (SPRs) of close to 2500 mb of crude and 1000 mb of oil products. The IEA last week decided to release 400 mb from global SPR. Equal to 20 days of full closure of the Strait of Hormuz. Thus oil in commercial stocks on land, commercial oil in transit at sea and release of oil from SPRs is currently buffering the situation.

But we are running the buffers down day by day. As a result we see gradually increasing stress here and there in the global oil market. Asia is feeling the pinch the most. It has very low self sufficiency of oil and most of the exports from the Gulf normally head to Asia. Availability of propane and butane many places in India (LPG) has dried up very quickly. Local prices have tripled as a result. Local availability of crude, bunker oil, fuel oil, jet fuel, naphtha and other oil products is quickly running down to critical levels many places in Asia with prices shooting up. Oman crude oil is marked at $153/b. Jet fuel in Singapore is marked at $191/b.

Oil at sea originating from Strait of Hormuz from before 28 Feb is rapidly emptied. Oil at sea is a large pool of commercial oil. An inventory of oil in constant move. If we assume that the average journey from the Persian Gulf to its destinations has a volume weighted average of 13.5 days then the amount of oil at sea originating from the Persian Gulf when the the US/Israel attacked on 28 Feb was 13.5 days * 20 mb/d = 269 mb. Since the strait closed, this oil has increasingly been delivered at its destinations. Those closest to the Strait, like Pakistan, felt the emptying of this supply chain the fastest. Propane prices shooting to 3x normal there already last week and restaurants serving cold food this week is a result of that. Some 50-60% of Asia’s imports of Naphtha normally originates from the Persian Gulf. So naphtha is a natural pain point for Asia. The Gulf also a large and important exporter of Jet fuel. That shut in has lifted jet prices above $200/b.

To simplify our calculations we assume that no oil has left the Strait since that date and that there is no increase in Saudi exports from Yanbu. Then the draining of this inventory at sea originated from the Persian Gulf will essentially look like this:

The supply chain of oil at sea originating from the Strait of Hormuz is soon empty. Except for oil allowed through the Strait of Hormuz by Iran and increased exports from Yanbu in the Red Sea. Not included here.

Oil at sea is falling fast as oil is delivered without any new refill in the Persian Gulf. Waivers for Russian crude is also shifting Russian crude to consumers. Brent crude will likely start to feel the pinch much more forcefully when oil at sea is drawn down another 200 mb to around 1000 mb. That is not much more than 10 days from here.

Oil and oil products are starting to become very pricy many places. Brent crude has still been shielded from spiking like the others.

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Buy Brent Dec-2026 calls with strike $150/b!

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1 månad sedan

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13 mars, 2026

Redaktionen

Closing at highest since Aug 2022. Brent crude gained 9.2% yesterday. The trading range was limited to $95.2 – 101.85/b with a close at $100.46/b and higher than the Monday close of $98.96/b. Ydy close was the highest close since August 2022. This morning Brent is up 2% to $102.4/b and is trading at the highest intraday level since Monday when it high an intraday high of $119.5/b.

A military hit at Iran’s Kharg island would be a big, big bang for the oil price. The big, big risk for the weekend is that oil infrastructure could be damaged. For example Iran’s Kharg island which is Iran’s major oil export hub. If damaged we would have a longer lasting loss of supply stretching way beyond Trump’s announced ”two more weeks”. It will make the spot price spike higher and it will lift the curve. Brent crude 2027 swap would jump above $80/b immediately. An attack on Kharg island would naturally lead Iran to strike back at other oil infrastructures in the Gulf. Especially those belonging to countries who harbor US military bases. I.e. countries who essentially are supporting the attack by US and Israel towards Iran. Though if not in spirit, then in practical operational terms. An attack on Kharg island would not just lead to a lasting outage of supply from Iran until it would be repaired. It would immediately endanger other oil infrastructure in the region as well and additional lasting loss of supply.

No one in their right mind would dare to sit short oil over the coming weekend. Oil is thus set to close the week at a very strong note today.

Prepare for another 400 mb SPR release next week. This week’s announcement of a 400 mb release from Strategic Oil Reserves totally underwhelmed the market with the oil price going higher rather than lower following the announcement. For one it means that the market expects the war and the closure of the Strait of Hormuz to last longer than Trump’s recent announced ”two more weeks”. 400 mb only amounts to 20 days of lost supply to the world through Hormuz and we are already at day 14. So next week when we are getting close to the 20 day mark, we are likely to see another announcement of another 400 mb release of SPR stocks to the market. Preparing for the next 20 days of war.

Global oil logistics in total disarray. We have previously addressed the issue of the huge logistical web of the global oil market which is now in total disarray. The logistical disruption started to fry the oil market at the end of last week. Helped to spike the oil market on Monday. What we hear from our shipping clients is that the problems with supply of fuels locally in Korea, Singapore, India and Africa are getting worse with physical availability of fuels there drying up. It is getting increasingly difficult to find physical supply of bunker oil with local, physical prices shooting way higher than financial benchmarks. To the point that biofuels have become the cheap option many places. Availability of fuels in the US is still good. Not so surprising as the US is self-sufficient with crude and refineries.

The disruption in global oil logistics doesn’t seem to improve. Rather the opposite. If you cannot get fuel to run your ships, then how can you distribute fuels to where it is needed.

Buy Brent Dec-2026 calls with strike $150/b!! As the days goes by the oil price is ticking higher while Trump is getting one day closer to US midterm elections. Trump was betting that he could put this war to bead well before November. But that will probably not be up to him to decide. It will be up to Iran to decide when to reopen the Strait of Hormuz. It is very hard to imagine that Iran will let Trump easily off the hock after he has killed its Supreme Leader. This will likely go all the way to November. Buy Brent Dec-2026 calls with strike $150/b!!

Brent closed at highest since 2022 ydy. Will end this Friday at a very strong note! Consumers still dreaming of $60/b oil