Gold and Commodities Market Review: Turkey Pushed Gold to Cheapest in 17 Months

Turkey Pushed Gold to Cheapest in 17 Months

Natural Gas Buoyed by Storage Deficit

As it is entering the injection season, natural gas price experienced a rebound last week. The CME natural gas futures settle price surged last week to hit the highest of $2.96 since June 28. Support comes from weather concerns, rising demand level and declining stockpile indicated from the report by U.S. Energy Information Administration (EIA).

Exhibit: CME_NG1 Future Price



Relatively Low Stock Level

According to the government’s report released last Thursday, there is a storage deficit for American natural gas. Although the domestic supplies of natural gas increased by 46 billion cubic feet (bcf) for the latest reporting week, the 2.354 trillion cubic feet (tcf) total U.S. stockpile is still down 671 billion cubic feet from the same time last year, and 19.5% below the five-year average. As seen from the detail data table below, the storage is relatively low for all regions across the states. The supply side remains flat as it reports unchanged average total supply of 87.1 bcf per day.

Exhibit: Working Gas in Underground Storage, Lower 48 States

(Source: U.S. Energy Information Administration)


Rising Domestic and Export Demand

However the demand level picked up as total natural gas consumption within the states increased by 1% from last reporting week. As inferred from a top five cooling degree days, reaching nearly 1,000 by the end of this summer, United States is also facing an extremely hot climate this year like the rest of the world. Hence, demand for natural gas-powered air-conditioning spiked. As a direct result, EIA reports a 6% higher natural gas consumed for power generation, its major consumption sector, than last reporting week.

Exhibit: U.S. Natural Gas Total Consumption

(Source: U.S. Energy Information Administration)


In addition, exports have been a new demand source for American gas. Based on EIA and Thomson Reuters’ data, U.S. exports to Mexico have more than tripled in the past decade. In the month, it rose by 3% and hit an all-time high since the operation of several Mexican pipelines.

Exhibit: Monthly U.S. Natural Gas Exports to Mexico

(Source: Reuters Graphics)


Turkey’s Currency Crisis Weighed on Bullion Price

U.S. gold price kept a falling trend in the past month amid the stronger USD with the explosion of trade war with this year’s U.S.-China trade war. On Monday, spot gold further dipped into a 17-month low of $1194.61 per ounce, triggered by the currency crisis in Turkey.

Exhibit: ^XAU Price

(Source: Yahoo Finance)

Gold is a traditional refuge and tool to preserve asset value from economic uncertainty. However, facing geopolitical risk from trade war this time, investors prefer greenback as an ultimate safe haven than the yellow metal. As a dollar-denominated asset, gold becomes more expensive and less attractive for foreign currency holders.

Last Friday, President Donald Trump announced to double its metal tariffs on imports from Turkey, resulting in a 20% duty on aluminum and 50% on steel. Trump made this move mainly as a sanction for the disagreement between two parties over defense policy and the detention of American pastor Andrew Brunson. He posted on Twitter that “Our relations with Turkey are not good at this time!”. Due to worries over the deteriorating relations with the largest economy as well as Turkish President Tayyip Erdogan’s increasing influence over the country’s monetary policy and economy, lira plunged up to 19%, its biggest one-day drop since early 2001. In 2018 alone, lira has lost more than 35% value.


In response to the economic crisis, Turkish President called on Turks to buy the crumbling lira, and sell their gold and U.S. dollars on the same day. Later this Monday, central bank pledged to provide “all the liquidity the banks need” and cut their lira and foreign currency reserve requirements. Moreover, Erdogan claimed that the US was trying to attack Turkey and insisted that Turkish economy remained strong and would overcome the attack to “the most reasonable level”, which failed to alleviate investors’ worries and made lira sink lower. Once again, U.S. dollar, instead of gold, became the destination of safe-haven investors.


I Know First’s Successful Forecast

On August 5th, I Know First algorithm issued bullish predictions for commodities for a 3-day horizon. The predictions include CME_O1, a continuous oat futures contracts and CME_NG1, a continuous natural gas future contract. Over the 3-day trading period from August 5 to August 8, CME_O1 raised by 5.61% and CME_NG1 increased by 3.36%.

This bullish commodity forecast was sent to the current I Know First Subscribers on August 5, 2018.


On July 12, I Know First algorithm issued bearish predictions for precious metals for a 1-month horizon. The predictions include XAG, commodity contracts for silver, GLD, a gold ETF and XAU, commodity contracts for gold. Over the 1-month trading period from July 12 to August 12, XAG dropped by 3.15%, GLD and XAU decreased by 2.51% and 2.37% respectively.

This bearish gold forecast was sent to the current I Know First Subscribers on July 12, 2018.


How to interpret this diagram

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top commodities picks.

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