On Friday, a set of weaker than expected data from the US labor market added to the overall misery and sent prices of Brent below 100 USD per barrel (USD/bbl). Meanwhile, US light sweet oil (WTI) fell below 84 USD/bbl. Regarding WTI, the latest CFTC data revealed that money managers’ net position in WTI stabilized at about 120 K contracts.
However, the data set does not contain the latest week during which the sell-off significantly intensified. Still, despite the recent events, money managers’ net position remains high (compared to longer term average). Quite interestingly, however, the share of long and short positions of money managers on total open interest has been falling since the beginning of May. Thus, rather than building outright bets on fall in oil prices, speculators probably prefer some kind of safe assets (US bonds, cash).
Friday’s bad news from the US labour market undermined prices of cyclical commodities. However, the impact on precious metals prices was exactly opposite as markets started to prepare on yet another injections of liquidity. As a result, spot gold surged by more than 4 percent and hence returned back above 1600 USD/toz.
Looking to the US, Fed chairman Bernanke testifies on Thursday before the JEC of Congress. The Minutes of the April FOMC showed that more governors than during the March meeting see need for more stimulus if the recovery lost momentum or risks to the outlook become great. We think it is highly likely that the Fed will decide to add some stimulus, via a third QE package or via an extension of the operation twist (selling ST bonds and buying longer term bonds). Should either of that happen, the price of gold might post further gains.