April 2, 2020

Back In Green | Oil Jumps While Gold Holdings Soar

Back In Green | Oil Jumps While Gold Holdings Soar

European markets are trading higher in the hope that the worst may be over for the epicenter of Europe. The coronavirus outbreak seems to have stabilized in Italy. There is only moderate growth in new coronavirus cases and the death rate has eased off.

It is highly likely that Spain may be seeing its peak as well in the next couple of days, but the pain is only going to become worse for the UK as the country is still far from seeing the peak of its coronavirus cases and the deaths caused by it.

The bottom line is that the unprecedented lockdown is working, and the restrictions are likely to stay in place while the governments will struggle to re-open the economy.

The healthcare officials believe that when  the governments eventually lift the lockdown, they should do it slowly. Full precaution should be taken because if countries rush into re-opening the economies, the risk of a second wave is high.

So far, Italy, France, Germany, and the UK have extended their lockdown period through Easter. The UK officials believe that the restrictions are likely to remain in place for months.

Overall, looking at the markets, it isn’t a stretched statement to say that there are some tentative signs of investors jumping back into the riskier assets today.

The sell-off over on Wall Street was intense yesterday and investors are still asking the million-dollar question:  are we going to move lower and, more importantly, if that 50% discount for the S&P500 index will become a reality? Yesterday’s sell-off has threatened the last week’s rally and investors have become a little more confused in regards to their next move.

Back in the commodity pace, investors are optimistic about Donald Trump’s comments. He believes that he can bring Russia and Saudi Arabia back to the table.

There is no doubt that oil at its current price is a huge threat to the US shale oil industry and it is only a matter of time before we will start hearing about some major bankruptcies in the energy sector.

Trump wants to safeguard the US shale oil industry and he is determined not to allow the OPEC+ cartel to destroy the US shale industry.

The hope is that Trump will be able to finish the spat between Russia and Saudi Arabia. The president is going to meet the top industry executives on Friday as Texas regulators prepare to debate output cut on April 14th.

Oil and Brent have jumped today on the back of hopes that we are likely to see less oil production out of the US, and this will provide the much-needed leverage for Trump. He might be able to persuade OPEC+ to cut their production as well and use the US shale industry as an example to lead them.

As for the precious metal markets, the gold ETF swell as investors seek safety. The gold-backed exchange-traded funds show gold holdings have surged and they are sitting at a record high level. We have seen an inflow of eight consecutive days.

I continue to maintain my view that any pullback in the gold price remains an opportunity for investors to buy the metal at a lower price.

In terms of economic data, the US weekly jobless claims number is likely to show that the labour market is even more tattered than last week. The number is expected to come in at 3.7 million, higher than the previous reading of 3.28 million.

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