WTI Fails Attempted Push Above $100, Reverses Lower as Gold Rallies on Post-weak US GDP Yield Slump

Key Points

• WTI reversed lower from an early session attempt to push above $100 per barrel with growth worries in focus.
• Copper continued to trade with an upside bias, with China stimulus headlines providing ongoing support.
• Gold prices rallied as weak US GDP data spurred fresh downside in US yields.

WTI Falls After Failing to Break Above $100 as Focus Shifts to Growth Worries

Front-month WTI futures prices attempted to push back above the $100 per barrel mark on Thursday, in an attempt to track global equity market upside, but have since reversed back into the $96.00s, where they now trade in the red on the day. Traders of the American benchmark for sweet light crude oil seemed to shift their focus back to a worsening demand outlook after data showed that the US economy unexpectedly contracted for a second successive quarter in Q2, confirming the economy is in a technical recession.

Copper Nears Three-week Highs Amid Risk-on Flows, China Stimulus Bets

Copper prices failed to hold at earlier session highs above $3.50, but continued to trade with an upside bias in the latter part of the US trading session in the $3.48 area, with prices getting a boost from upside in global equity markets. Stocks rallied and bond yields fell in the US and Europe on Thursday as traders bet that fresh signs of economic weakness in the US would encourage the Fed to take a slower approach to rate hikes in the coming quarters, reducing the medium-term downside risk of higher interest rates.

Copper is now up over 4.5% on the week and trading at near three-week highs, with hopes for more stimulus in China to support infrastructure projects and the country’s flagging property sector also boosting sentiment. China will issue $148.2 billion in loans to struggling property developers, the Financial Times reported on Thursday. Earlier in the week, reports suggest that China will set up a more than $44 billion infrastructure fund. China is the world’s largest copper consumer.

Gold Rallies as Real Yields Slide

Thursday’s ugly Q2 US GDP growth report added further fuel to the rally in US bond markets that has pressured yields in the past few days, thus spurring further upside in rate-sensitive precious metals markets. Spot gold prices rallied into the $1,750s on Thursday, gaining another 1.0% and taking their gains since last week’s $1,680 lows to over 4.0%.

US 10-year TIPS yields (the US 10-year real yield) are now down nearly 50 bps from earlier monthly highs in wake of the recent dovish Fed meeting and Thursday’s soft data. Lower real yields reduce the so-called opportunity cost of holding non-yielding precious metals. Break-even inflation expectations are also sharply up in recent days on the idea that a less hawkish Fed will result in a stronger economy in the long run and this may be boosting demand for precious metals as an inflation hedge.