Week In Review: Aug 8th – Aug 12th

Oil Prices Slide as Stockpiles Rose Unexpectedly

Last Wednesday, OPEC+ has agreed to raise its production output by 100,000 barrels per day in September which amounts to 0.1% of the demand globally. The unexpected increase in crude oil inventories as well as OPEC+’s decision to increase its output triggered a 4% decline in oil prices.

Oil has erased all its gains since the outbreak of Ukraine’s war on global recession fears and weakening demand. The market is more concerned about growth than inflation and this has dragged oil prices lower.

US Dollar surged on stronger than expected NFP print

US economy added 528k new jobs in July beating estimates of 250k. This is more than double the consensus expectations. The unemployment rate fell to 3.5% while the wage growth rose to 5.2%. US Dollar jumps to a daily high near 107.00 while treasury yields soared to 2.869%.

Rising wage figures and falling unemployment rate as well as solid jobs report shows that the US economy continues to strengthen amid Fed’s tightening program. Equities seesaw on blowout US payrolls report but managed to stay flat after despite the strong data. Meanwhile, gold prices plunged from one-month highs to $1,765 and silver fell to a daily low of $19.55 on surging treasury yields and the strong dollar.

Gold forecast: Is a 75bps Fed rate hike in sight?

The inflation report will greatly affect Fed’s rate hike decision in September. Consumer Price Index (CPI) for July is due on Wednesday with a forecast of 8.9% YoY vs 9.1% YoY in June. If the actual reading is greater than the forecast, this will send the dollar to rally and a lower reading will be negative for the currency.

If the CPI report is above 9%, there is a 70% probability that a 75 bps hike is likely to happen in September. This will exert downward pressure on the yellow metal and any meaningful recovery would be limited. Support is seen at $1,754. A subsequent break of $1,800 will alleviate the bearish pressure on gold.

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