Gold Rallies On Missile Test While Hurricane Harvey Sinks Oil.
The last week of August was tipped by some to be a snoozefest for the markets, but North Korea and Mother Nature had other plans. Gold and Oil/Gasoline have popped for entirely different reasons, and the flow-on effects from these events could be far reaching.
North Korea, Missiles & Gold.
Gold has been strong since mid July, where it bottomed out at just above $1200US/OZ. The latest round of geopolitical chicken, which saw Japan issue SMS emergency warnings to citizens in the North on Sunday, has seen some modest safe haven flows. Gold has been a primary beneficiary, pushing past the 1296 resistance level and closing above it for the first time since November 2016. The yellow metals is also benefiting from a weaker US Dollar, with the Euro pushing past $1.20 yesterday.
The Gold bulls were out on CNBC today, which usually means that the move’s done and it’s time to get out. I’m more cautious this time though. The technical breakout on Gold looks good, and USD weakness and geopolitical problems only add to the bull case. I’ll be watching closely to see how Gold performs should this North Korea issue sort itself out, or if NFP is strong this week. Until then, it seems as though it’s all-aboard the Gold bull train.
Hurricanes, Rain and Oil.
Hurricane Harvey has brought astonishing amounts of rain to Houston and surrounding areas. Houston is the centre of oil refinery in the USA, turning around 2.2 million barrels of oil per day into various products, including gasoline. Refinery has stopped for the moment, and there’s no word on when the switch will be turned on again. Floodwaters are preventing workers from getting to work, even if the refineries aren’t flooded.
Gasoline prices have spiked, with RBOB futures at their highest level since July 2016. Interestingly, CL futures are down over $1.60, with fears of a glut forming due to the bottleneck in the supply chain. I’ll be watching gasoline for a short once we see refineries come back online, but this is a pretty difficult trade to make at a retail level. Insurance companies with heavy exposure to South-East Texas, especially car insurers, could be interesting to look at on the short side over the short-term.
Best wishes to all those affected in Houston, and let’s hope that North Korea and the US can sort this out peacefully.