Oil prices are projected to see a spike while gold prices are expected to be volatile in the global market in the coming days and weeks amidst a drastic change in market speculations to how much could be the interest rate cut by the US Federal Reserve than what could be the timeline for the rate cut, market experts and traders said.
The growing call amongst Democrats in the US for the elimination of billions in oil and gas subsidies by clawing back tax breaks for fossil fuels is another factor which could pump up prices of crude, they said.
Brent crude prices were trading at $81.20, while gold prices were trading 2.16 percent up at $2,518 per ounce in the morning trading hours on Tuesday.
Oil prices rebound on Fed cues
Vijay Valecha, Chief Investment Officer at Century Financial, said oil prices saw a bounce back after comments from the head of the Federal Reserve on Friday, confirming prospects for interest rate cuts.
“[An imminent] cut in interest rate would help strengthen the economy – and demand for crude,” he said.
The latest data released by the US Energy Information Administration showing a more than expected fall in US crude oil stockpiles last week in the wake of refineries increasing their capacity use also added to the projections of a bump up in oil prices going forward, analysts said.
Mohamed Hashad, Chief Market Strategist at Dubai-based Noor Capital, however, said the rebound in oil prices could be short-lived as concerns over demand and a potential supply surplus loomed large.
“OPEC finds itself in a challenging position. Adhering to their previous production cut commitments could bolster their credibility, but reversing course could undermine their influence over oil prices.
“The bloc’s decision will significantly impact the market’s outlook,” Hashad said.
Analysts warned that the oil market may struggle to absorb additional OPEC barrels once production cuts are lifted.
Morgan Stanley lowered its Brent Crude forecast to $80 per barrel, citing weaker global demand growth and sluggish Chinese consumption.
Debate over an interest rate cut changes course
A series of comments by high-level US Fed Reserve policymakers, including its chair, led to a drastic change in the market discourse over rate cuts from when to how much.
Speaking at the Jackson Hole Symposium on Friday, Federal Reserve Chair Jerome Powell hinted at a potential rate cut in the policy making body’s September meeting, scheduled for 17-18.
Philadelphia Fed President Patrick Harker has also expressed support for two or three rate cuts in 2024, while Chicago Fed President Austan Goolsbee noted that the current monetary policy is highly restrictive, with a shift in focus toward employment goals.
Market analysts said that Powell’s stance was dovish, he left some uncertainty regarding the size of the rate cut, indicating that it would depend on upcoming economic data and the balance of risks.
According to CME’s Fedwatch tool market, participants are pricing at a 61.5 percent probability for a 25-bps (basis point) rate cut and a 38.5 percent probability for a 50-bps rate cut in the September meeting.
Noor Capital’s Harshad said market expectations remain high, with a 32 percent chance of a 50-basis point rate cut in September.
The minutes of the latest US Federal Open Market Committee (FOMC) meeting indicated that there is a possibility for the central bank to start cutting interest rates at the September meeting.
If the rate cut comes in September, it would be the first cut since the Fed began raising rates in response to the huge increases in US inflation during the pandemic.
Volatility ahead for gold market
Gold prices rose by 2.16 percent to $2,517.93 per ounce in the morning trading hours on Tuesday, extending the surge made in the last two sessions after Fed Chair Powell hinted at a potential rate cut in the September meeting.
Hashad said as a result of Powell’s comment on Friday, the gold market experienced significant buying, with December gold futures trading at $2,551.60 per ounce – a more than 1 percent increase on Friday.
Century Financial’s Valecha said from a technical perspective, the price of the yellow metal bounced after retesting the breakout of trendline resistance last week, indicating bullish momentum.
He, however, said gold prices could face high volatility in the coming sessions, as the metal faces critical downward trendline resistance around the $2,516 price mark.
“If broken, gold could reach previous all-time highs at $2531. On the downside, immediate support is found at $2,500.
“However, if selling pressure increases, a break below $2,500 could lead to a further drop, with the next support level around $2,486,” Hashad said.
Gold prices in the UAE were at AED 304.50 per gram for 24-carat, AED 282 for 22-carat, and AED 230.70 for 18-carat on Tuesday morning hours.
Follow us on
