DOLLAR STRENGTH PRESSURES COMMODITIES
The US dollar rose against a basket of other major currencies Monday in a move that sent precious metals to more than one-month lows.
The US dollar index, a weighted average of the greenback against a basket of six currencies, advanced 0.2% to 97.43. The greenback posted narrow gains against the euro, which softened despite better than expected business confidence data.
Germany’s business climate index, as measured by the CESifo Group, strengthened to 115.1 in June from 114.6 the previous month. Analysts in a median estimate forecast a slight dip to 114.6. The current assessment indicator rose to 124.1 from a revised 123.3. The gauge measuring future expectations also strengthened to 106.8 from 106.5.
Germany is Europe’s largest economy, accounting for roughly one-third of Eurozone gross domestic product (GDP).
A stronger dollar sent precious metals tumbling at the start of the week, with gold prices falling to a daily low of $1,236.43 a troy ounce. That was the lowest level since mid-May.
Silver prices also plunged more than 1%, falling to its lowest level since early May.
Precious metals are priced in US dollars, which makes them highly sensitive to movements in the greenback. Rate-hike bets over the past few years have sent the dollar soaring, which has placed downward pressure on gold and silver prices.
Oil traded higher through the overnight session, but was well off session highs, as prices began to stabilize following a five-week correction. Despite sliding to seven-month lows, according to Goldman Sachs. The multinational investment bank says the recent selloff is likely to induce a fresh round of buyers into the market.
US West Texas Intermediate (WTI) crude edged up 0.3% to $43.12 a barrel. It reached a session high of $43.65 a barrel earlier. Meanwhile, Brent crude advanced 0.1% to $45.58 a barrel, coming down from an earlier high of $46.24 a barrel.
On Friday, energy services provider Baker Hughes Inc. said US active oil rigs rose by 11 to 758. The relentless pace of expansion suggests shale producers are offsetting OPEC’s output cuts, thus placing further pressure on the market.
The EUR/USD declined slightly through the European session but was back to trading at even par ahead of North American trade. The pair continues to eye 1.12 over the immediate term. Despite strong resistance, the common currency is likely to rise back above that level as the greenback shows mixed signals following multiple rate hikes.
Gold is back on the defensive at the start of the week, undoing three days of progress that sent prices back above a key technical hurdle. The latest drop signals renewed bearish pressure for precious metals. Stronger risk sentiment in the financial markets could signal an even bigger drop for precious metals in the short term.
Silver prices followed gold sharply lower on Monday, with the grey metal plunging to one-and-a-half month lows. The sharp reversal characterizes what has been a volatile year for silver prices. Traders can expect the metal to maintain its range-bound state for the foreseeable future.
Although the worst of the oil-price collapse appears to be behind us, the black commodity is struggling for momentum. This is likely to continue as traders contend with supply-demand imbalances. With Libyan crude output at four-year highs, market participants can expect the supply glut to persist for the foreseeable future. This will put a cap on any major rally.