Gold Shines while Uncertain Demand Outlook Weighs on Crude Oil, Natural Gas

Volatility hit the commodity markets last week, led by a surprisingly strong rally in gold and steep declines in the energy complex. Gold finished at its highest level in seven weeks, while WTI and Brent crude oil posted their biggest monthly decline in six months. Natural gas fell victim to a large bearish miss in this week’s government storage report and forecasts predicting weak cooling demand.

Gold

It’s been a long wait, but bullish gold investors finally received the right combination of factors to fuel a strong rally. The move actually started the previous week when aggressive speculative buyers came in at $1274.60 to successfully defend the low of the year at $1273.20. Several days of consolidation followed as investors watched Treasury yields plunge and stock indexes drop to multi-month lows. Typically, these events are bullish for gold, but gains were being capped by a strong U.S. Dollar Index that was hovering near a two-year high.

The final piece of the bullish puzzle for gold hit on Friday after President Trump vowed to place a tariff on imports from Mexico. The news shook up the financial markets as dire predictions of a recession later in the year crossed traders’ minds. This news coupled with worries over low inflation, a lower than expected Chicago PMI report and a drop in Consumer Sentiment, brought in a wave of buyers as investors increased bets on a central bank rate cut later in the year. The events were bearish for the U.S. Dollar, while increasing foreign demand for dollar-denominated gold.

For the week, August Comex gold settled at $1311.10, up $21.90 or +1.70%.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished sharply lower last week for the same reasons that drove gold prices sharply higher. Last week’s steep losses indicate that investors are worried about future demand after President Trump raised geopolitical fears with his promise to place a tariff on Mexican goods including food, autos and crude oil.

According to the U.S. Energy Department, the United States also exports more fuels to Mexico than any other country, but so far Mexico has not said whether it would retaliate. The 5% tariff, expected to kick in on June 10, will add an extra $2 million per day to the cost of U.S. refiners’ daily purchases.

Last week, July WTI crude oil settled at $53.50, down $5.13 or -8.75% and August Brent crude oil finished at $61.99, down $5.48 or -8.84%.

Natural Gas

Natural Gas futures closed lower last week, while falling below the psychological $2.500 level in the process. The catalysts behind the selling pressure were a larger-than-expected weekly government storage build and a new forecast calling for milder temperatures in early June. A nationwide plunge in the spot market also contributed to the weakness as well as nervousness over U.S. trade policy.

For the week, July natural gas settled at $2.454, down $0.157 or -6.01%.