Stock markets around the globe got a lift on Friday as crude oil prices staged a huge rally. The surge in oil prices stretched back to the end of trading on Thursday, carrying that momentum into the end of the week and easing investors' fears about moving into riskier assets.
In spite of the exuberance, spot gold was mostly steady on Friday morning, falling about $4.50 per ounce (down 0.4%) to hold at $1,098/oz. Spot silver gained 10¢ per ounce to $14.30/oz, though the futures market for the metal oddly remains in backwardation. The March contract for COMEX silver last traded up about 5¢ at $14.15/oz.
Spot gold gained just 20¢ per ounce on Thursday, trading between a low of $1,091.80/oz and a high of $1,105.80/oz to close at $1,101.40/oz. The late-day recovery for stocks led to the biggest single-day losses for gold futures in a week, however.
The February contract for gold fell by $8/oz (down 0.7%). This followed a settlement of $1,106.20/oz on Wednesday, the best closing for the most-active gold futures contract in two weeks. Even though paper gold missed out on the afternoon rebound that spot gold experienced, gold futures are up 3.6% year-to-date.
The latest technical numbers show support for gold prices at $1,092.50/oz and then $1,087/oz below that. The next key resistance levels of $1,102/oz and $1,106/oz are near the last two intraday trading highs.
Action in the Oil Market
The rally for oil prices helped stocks end well on Thursday. Equities are carrying over the momentum into Friday. Across the globe, stock markets were sharply in the green. The Shanghai Composite gained 1.25% overnight while Japan's Nikkei 225 index surged 5.9%, the most in four months. European shares followed their Asian counterparts into positive territory, and U.S. indices also traded about 2% higher at Friday's opening bell.
Both WTI crude and Brent crude advanced more than 4% on Thursday. This was attributed to a mix of oversold conditions and news of attacks on Libyan oil terminals, highlighting the risk of supply disruptions across the oil-rich Middle East. Previously, WTI and Brent had sunk to their lowest price levels since 2003 on Wednesday.
On Friday, the resurgence for crude oil continued in earnest, as both benchmarks traded above $31/bbl after reaching as high as 8% in the green at one point in the morning. This came despite reported increase in weekly U.S. inventories.
Despite the rebound for stocks and energy prices, the markets are still seeing alarming outflows from the credit markets (e.g. corporate bonds) totaling nearly $5 billion in the past week.
Outlook for Next Week
While the signs of turnaround for oil are driving short-term market behavior, central bank policy has been a close second as an influencing factor. Mario Draghi played the dove to the markets in his statements regarding ECB policy guidance, promising more stimulus from the bank to aid the struggling Eurozone economy. This sent the euro back down to $1.08 as the dollar remained firm above 99.35 on the DXY index.
With respect to the intentions of other major central banks, both the Bank of Japan and the FOMC will be meeting next week. The BoJ is expected to shadow the dovish prescription of the ECB, making promises for more stimulus without actually making any concrete decision at its announcement next Thursday. The FOMC, meanwhile, will conclude its two-day meeting on Wednesday, perhaps signaling the dimming likelihood of meeting its unofficial target for four rate hikes in 2016. In light of the depth of the stock market sell-off so far in January, most experts believe the Fed will be limited to just two rate increases this year.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.