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Gold price ‘dodges a bullet,’ but is there a chance for a breakout?

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(Kitco News) Gold staged a solid rally Friday as markets increased bets on a slower tightening cycle from the Federal Reserve following the November meeting. Analysts are now paying close attention to next week’s U.S. Q3 GDP data and earnings reports to get a better glimpse into the state of the U.S. economy.

December gold futures rallied more than $20 on the day and last traded at $1,657.80 an ounce after hitting a new two-year low and almost breaching the key support level at $1,620 earlier in the week.

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The move higher was triggered by the market reexamining its rate hike expectations after The Wall Street Journal reported that the Fed would debate the size of future rate hikes following its widely-expected 75-basis-point increase in November.

“The idea that we could see the Fed debate whether or not they should downshift into a slower pace of tightening really excited investors,” OANDA senior market analyst Edward Moya told Kitco News.

Prior to Friday’s news, markets were looking for a 75 bps hike in November and another 75 bps in December. Now, if the Fed does debate, it could easily justify half a point shift instead in December. Plus, the U.S. economy could be starting to see the impact of the first rate hikes, Moya pointed out.

“Today’s rally is impressive. Gold held the $1,620 level following a major pivot on rate hike expectations. Gold might have dodged the bullet here. Next week is critical for earnings season,” he said. “A lot of market potential for volatility. I am leaning towards bullish for next week. We could probably see the idea of the Fed downshifting supported.”

Moya is paying close attention to next week’s third-quarter GDP data, scheduled for Thursday. Market consensus calls are looking for growth to recover to 2.1% after two negative quarters.

“The GDP data is a big wild card. We are supposed to turn positive after a streak of two bad quarters. There is a lot that could complicate what happens here. The risk now is that something is breaking for the economy,” Moya noted.

From the technical perspective, gold is still in a downtrend, and the risk is tilted to the downside.

“Technically, we better hold in here, or prices could move down another 5% to $1,560, then to $1,470-80. That’s what is shaping up technically,” Walsh Trading co-director Sean Lusk told Kitco News. “But from a bargaining standpoint, gold saw a six-month-long washout after hitting a peak of above $2,000 an ounce back in March. When does it end? How much is enough before seeing stabilization?”

There is a risk that gold could drop another $100 before finding its bottom, Lusk warned. “The $1,620 level needs to hold near term — potential double bottom on charts. Investors have been selling into rallies. We’ve hit a near-term bottom, so I am bullish next week. But all bets are off going into the Fed meeting in November,” he said.

Gold is in uncharted territory for the moment, said Gainesville Coins precious metals expert Everett Millman, pointing out that gold is well below some key trading levels from earlier this year.

“It will be interesting to watch how quickly those higher rates bring down inflation. Even though higher rates are negative for gold, rates as high as 5% are still below the inflation level, which means real rates are still negative. So if the Fed pivots next year, we’ll see gold respond gradually,” Millman told Kitco News.

Another unknown to watch is China and its decision to delay the release of its macroeconomic indicators scheduled for publication this week, which included its third-quarter GDP data.

“China is being less transparent, delaying reports on economic data. I’m watching how long this delay is. If we go a month or more without getting data out of China, it could be a big red flag that drives additional safe-haven flows,” Millman added.

Next week’s macro data

Tuesday: CB consumer confidence, Yellen speaks

Wednesday: U.S. new home sales, Bank of Canada rate decision

Thursday: European Central Bank rate decision, U.S. jobless claims, U.S. Q3 GDP, durable goods orders

Friday: U.S. PCE price index, U.S. pending home sales

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Keystone pipeline temporarily closed following Kansas oil spill

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The energy company in charge of the pipeline has not said what caused the spill or how much oil was released.

The Keystone pipeline has halted operations following an oil spill into a creek in the United States state of Kansas. The pipeline carries more than 600,000 barrels of oil from Canada to the Texas Gulf Coast each day.

Canada-based TC Energy said in a press release that it shut down the pipeline on Wednesday night in response to a drop in pipeline pressure. The company has yet to offer information on the scale and cause of the spill.

“The system remains shut down as our crews actively respond and work to contain and recover the oil,” the release said.

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The spill resulted in oil leaking into a creek in northeastern Kansas and the company has said they were using machinery to prevent the oil from moving further downstream. Pipelines have long spurred concerns about the destructive potential of oil spills.

Another pipeline previously proposed by TC, the Keystone XL pipeline, would have been 1,930 kilometres (1,200 miles) long and cut across US states such as Montana, South Dakota and Nebraska.

That proposal spurred strong opposition from advocates who said it would increase the chance of spills, undermine the rights of Indigenous communities and worsen climate change.

Former President Donald Trump approved a permit for the contentious project in 2017 but a court halted construction in 2018 before the permit was cancelled by President Joe Biden’s administration last year.

TC finally abandoned the effort in June 2021 but has since filed a claim seeking remuneration for losses it says it faced because of the cancellation.

The spill on Wednesday occurred several years after the Keystone pipeline leaked about 1.4m litres (383,000 gallons) of oil in eastern North Dakota in 2019.

As word of the shutdown spread on Wednesday, oil prices ticked upwards by about five percent.

“It’s something to keep an eye on, but not necessarily an immediate impact for now,” said Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks gasoline prices, according to the Associated Press. “It could eventually impact oil supplies to refiners, which could be severe if it lasts more than a few days.”

In their statement, Keystone said their primary focus was the “health and safety of onsite staff and personnel, the surrounding community, and mitigating risk to the environment through the deployment of booms downstream as we work to contain and prevent further migration of the release”.

Previous Keystone spills have resulted in stoppages that lasted up to two weeks. However, analysts have noted that the current stoppage could possibly last longer because it involves a body of water.

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Bank of Canada policy will ‘hit home’ in 2023: David Rosenberg

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The Bank of Canada may be signalling a possible end to its months-long aggressive interest-rate hike cycle, but economist David Rosenberg said next year will see the lagging impact of 2022’s monetary policy “hit home” for Canadians.

“Next year is the payback,” Rosenberg, chief economist and strategist at Rosenberg Research and Associates Inc., said in an interview with BNN Bloomberg.

“2022 was the year of the sharp run-up in rates, 2023 will be the year where the policy lags from those rising rates hit home.”

He made the comments Thursday, a day after the Bank of Canada raised its overnight lending rate by 50 basis points to 4.25 per cent, as the central bank continued with its approach to bringing down inflation.

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Rosenberg predicted a “severe recession” for Canada next year based on the rate hike cycle, calling for a “triple whammy” with economic impacts compounded by high levels of household debt, a housing bubble and ripples in the global economy.

Possible spillover effects from the interest rate cycle could be felt, Rosenberg said, as banks may constrain the availability of credit and spending drops across various sectors.

Based on the latest rate increase, Rosenberg said he predicts at potentially one more rate hike from the bank before a pause. Once inflation starts to come down, Rosenberg said he thinks the central bank may start to cut rates, possibly in the second half of 2023.

“The next stage is going to be waiting for the inflation to come down, which I think it will, and the recession is going to catch a lot of people by surprise,” he said.

A similar pattern may play out in the U.S., but Rosenberg said Canadians are more exposed to higher interest rates through variable-rate mortgages and because more consumer credit is tied to short-term interest rates.

“As bad as it’s going to be in the U.S., and believe me, it’s not going to be a pretty picture there, I think the Canadian situation in the next year is going to be clouded at best,” he said.

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CRTC rejects Telus’ request to charge credit card processing fee for some services

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The Canadian Radio-television and Telecommunications Commission ruled Thursday that Telus is not able to charge a credit card processing fee for regulated home telephone services.

This ruling applies to Alberta and B.C. services that are regulated by the CRTC, which are generally home telephone services in certain smaller communities.

Since Oct. 6, most Canadian businesses, except in Quebec, can charge their customers a fee for credit card transactions, following a class-action lawsuit filed by retailers against Visa, MasterCard and card-issuing banks.

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Quebec is not included in this decision due to the province’s Consumer Protection Act, which prohibits the application of such surcharges.

On Aug. 8, Telus filed an application with the CRTC to introduce a credit card processing fee of 1.5 per cent, plus taxes, for payments made with a credit card.

On. Oct. 17, Telus began to charge the fee to clients paying by credit card in areas where services are not regulated by the CRTC, which includes its wireless and internet customers outside of Quebec.

Telus does not need to ask for the CRTC’s approval to add the surcharge to its unregulated services but the organization said it is “very concerned” about this practice as it goes against affordability and consumer interest.

“We heard Canadians loud and clear: close to 4,000 of you told us that you should not be subjected to an additional fee based on the method you choose to pay your bill,” Ian Scott, chairperson and CEO of the CRTC, said in a statement. “We expect the telecommunications industry to treat Canadians with respect and do better.”

The CRTC said, with this ruling, it is sending a “clear message” to Telus and other telecommunications service providers that are thinking of imposing a fee like this one on their customers.

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