Daily Market Analysis from Investizo.com

Fundamental analysis of WTI

Oil prices rose on Wednesday for several reasons. The key driver of the rise was a significant decline in U.S. crude oil inventories, as evidenced by a weekly decline of 11.5 million barrels, which peaked on August 25. The sharp drop was the largest since September 2016 and exceeded market expectations, signaling strong demand for oil. The decline in inventories underscores the challenges of replenishing supply and signals growing demand for energy. Another reason for high prices is the threat of Hurricane Idalia in the Gulf of Mexico. Current forecasts suggest the hurricane could move eastward and bypass major sources of oil, but its very presence could lead to potential supply chain disruptions in the region. The Gulf is an integral part of U.S. oil production, accounting for nearly 15% of U.S. oil production. This environmental uncertainty certainly underscores the unpredictable nature of the oil industry.



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Fundamental analysis of WTI

Benchmark US crude oil WTI - currently trading around 86.70. The recent strengthening of prices is due to a number of factors, both domestic and global. According to preliminary data from the American Petroleum Institute, U.S. oil inventories declined by 5.5 million barrels in the week ending September 1. This figure indicates supply constraints. Globally, major oil producers Saudi Arabia and Russia played a key role in influencing the trajectory of WTI. Both countries have decided to extend voluntary oil supply cuts until the end of 2023. Saudi Arabia is expected to cut production by 1 million bpd in the last quarter of 2023. On the other hand, Russia has pledged to cut production by 300,000 bpd. It is important to note that this reduction will be assessed on a monthly basis depending on changes in market conditions. Under the influence of these factors, oil futures contracts rose. With quotes trading near a nine-month high, market sentiment indicates that a short-term supply cut is imminent.



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Fundamental analysis of XAU/USD

Gold prices remained cautious on Tuesday, trading around 1919.70 as traders' attention focused on upcoming U.S. inflation data, which serves as an indicator for investors and future interest rate actions by the Federal Reserve, which hinted at further policy tightening. While the recent decline in the dollar has had a small impact on gold, making it a more attractive option for traders in other currencies, rising Treasury bond yields have limited that impact somewhat. The key to traders' strategy lies in the US consumer price index data released on Wednesday. It is considered by many to be an important indicator in determining the Fed's interest rate path in the coming months. Market rumors suggest that another interest rate hike is possible this year. The CME FedWatch tool gives a 93% probability that the Fed will maintain its current stance in September. However, between now and November, the probability of a rate hike is 41%. While the Fed is hesitant to significantly raise interest rates, it appears that the agency has yet to decide on its strategy. Gold's rise depends on a number of factors: a decrease in the Fed's aggressiveness, a drop in the dollar index and Treasury yields. However, until CPI data is released, the market is expected to remain inactive. CPI results equal to or higher than forecasts could reduce gold's upward momentum in the near term.




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Fundamental analysis of XAU/USD

The cost of gold continues its consistent decline and is trading at 1907.00. Interestingly, this pullback occurred against the backdrop of a weakening US dollar and 10-year Treasury bond yields, which usually support gold prices. The decline in gold prices is attributed to the latest US inflation data, which points to the possibility that the Federal Reserve will pause its interest rate adjustments next week. Digging deeper into these numbers, the Labor Department found that U.S. core inflation rose at an annualized rate at its lowest in nearly two years, hinting at the possibility that the Fed may pause interest rate hikes. In contrast, August marked the largest increase in U.S. consumer prices in 14 months, with a significant contribution from a sharp rise in gasoline prices. With such conflicting indicators, the market faces uncertainty about the Fed's interest rate direction in 2024, which has a significant impact on gold's volatility. Despite gold's historical appeal as a safe haven, the world's largest exchange-traded fund, the SPDR Gold Trust, saw its holdings fall 0.3%. This slowdown, reflecting falling demand, coincided with a strengthening US dollar, reinforced by inflation data. For investors trading in other currencies, the strong dollar drove up the price of gold. However, while the CPI data was largely in line with market forecasts, it suggested that the Federal Open Market Committee may maintain current levels, which would provide temporary support to prices. Given recent economic developments, market forecasts suggest that the Fed will leave interest rates unchanged at its next meeting. Rising interest rates traditionally increase the attractiveness of US Treasuries, making them preferable to underperforming assets such as gold. As a result, precious metals investors are shifting their concerns from inflation to the opportunity cost of owning gold in a rising interest rate environment. On the contrary, during Thursday's Asian session after the release of the U.S. Consumer Price Index data, gold showed a slight recovery and consolidated at 1910.00.



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Fundamental analysis of XAU/USD
Gold (XAU/USD) is trending higher and is trading at 1928.50. This rally has been boosted by December gold futures, which rose by 4.70 USD. This uptrend coincides with the weak sentiment in Asian equities, while precious metals are being strengthened by a range of global factors. The US Federal Reserve's next monetary policy meeting remains a top priority. Most expect the Fed to leave interest rates unchanged, but market speculation still points to the possibility of a 25 basis point rate hike in November or December. However, the resilience of the U.S. labor market, controlled inflation and rapid economic growth paint a picture in which the Fed could signal a soft landing for the economy. At the same time, the recent depreciation of the dollar based on recent US data has made gold more accessible to those trading in alternative currencies, making spot gold significantly more expensive each week. 
 
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