By Barani Krishnan
Investing.com -- What a week it’s been -- and what a week ahead it’ll likely be for the markets. The presidential drama may have cooled sooner than expected - for now - but it’s impact will be far-reaching across the different equity, bonds, forex and commodity markets.
A relief rally is likely on Wall Street and global stock markets given that Election 2020 had passed with surprising calm versus the civil war-like aftermath many had feared. And the dollar’s standing as a haven currency may take an even harder knock if risk-on goes into full-blown mode.
A tanking dollar could give gold upside velocity not seen since the late July to early August stretch, when it hit record highs of nearly $2,080 an ounce.
This is particularly so if talks for a coronavirus economic stimulus resume in earnest during the lame-duck session before the Jan. 20, 2021 Inauguration Day. If history is a guide, achieving anything meaningful will be next to impossible between two sides with so much distrust and scorn for each other.
Yet, Biden’s moderate and unified approach might appeal to some Republicans and soften the rigid demands of some of his own Democrat colleagues, including House Speaker Nancy Pelosi.
So gold bulls can’t be faulted for hoping for stimulus talks that would at least lay the ground for a fiscal plan that could pass muster with the Senate in January. In anticipation of that, gold prices could take off as early as Monday, building toward the $2,000 target, as traders prepare for the hedge the yellow metal will ultimately be to the dollar debasement that will follow.
In oil’s case, the opposite is expected instead in terms of direction.
Foremost on oil traders’ minds is “how green” the Biden Plan for energy will be. We’ve heard that the president-elect’s $2 trillion proposal will be narrower and less aggressive than the Green New Deal of the far-left of his party that not only aims to aggressively tackle climate change but also issues such as social justice, jobs, housing and health care.
While that may be the case, what really matters to oil traders is whether Biden’s policies will put a great squeeze on fracking and ultimately shut down fossil fuels for renewables.
The long answer is yes, but that’s unlikely to happen anytime soon. In fact, given his centrist approach, Biden is unlikely to rock the energy boat greatly at all, and there are doubts whether there’ll even be a major disruption to oil production toward the end of his first term.
For the record, the incoming president has committed to prohibit only permits for new oil and gas drilling on federal land and waters. Expert legal opinion is that a broad ban on new drilling permits or even lease sales would be difficult for him to impose immediately.
But there’s also a genuine fear that Biden would be less friendly to the Organization of Petroleum Exporting Countries than his soon-to-be-predecessor Donald Trump. In a 180-degree turn, Trump went from breathing down OPEC’s neck to pressure for lower oil prices before the 2018 midterm election, to rescuing the cartel during the market's worst ever crisis in March that took crude to minus $40 per barrel.
Another major fear among oil traders is how quickly Biden could bring back the Obama-era nuclear deal with Iran to allow Tehran to resume oil exports that the Trump administration had practically shut down over the past two years through sanctions.
A Tehran freed from sanctions could easily add between one million and two million barrels of oil per day to global production, seriously impacting crude prices in a market that continues to suffer from low demand forced by the Covid-19 pandemic. Already, output has been ramping in Libya, another major OPEC member that has returned to the market in a big way since a peace deal struck with domestic warring factions last month.
While sanctions on Iran will remain through the end of Trump’s term of Jan. 20, the remotest possibility of the Islamic state’s oil returning to the market right after that could weigh on crude prices, complicating a return to $40 levels.
Also weighing on oil in the near term will be tightening of Covid-19 safety measures that could limit social activity and demand for oil. Biden, in his first president-elect speech on Saturday, said he was putting together an interim coronavirus response team, signaling stricter adherence to safety versus the relaxed approach to the pandemic taken by the Trump administration.
Energy Weekly Review
Oil prices fell at Friday’s close but rebounded on the week, exhibiting volatility unsurprising for the world’s most politically-sensitive commodity as Biden appeared on his way to the White House amid vows by Trump to legally challenge the outcome.
New York-traded West Texas Intermediate, the leading indicator for U.S. crude, last traded at $37.46, after settling the official session down $1.65, or 4.2%, at $37.14 per barrel. For the week, however, WTI jumped 3.8% rebounding strongly from a mid-June low of under $33.64 hit earlier in the week before it slid again on demand concerns.
London-traded Brent, the global benchmark for crude, fell $1.48, or 3.6% to settle at $39.45 per barrel. Brent rose 5.3% on the week.
“The risk of the market’s attitude is apparent,” said Phil Flynn, analyst at Price Group Futures in Chicago. “The main reason is still the coronavirus plague that raises a concern for more oil and gas demand destruction. Also, job losses in the energy space have been racking up.”
More than 9.6 million Americans have been infected by the Covid-19, and over 233,000 have died from complications related to the virus.
The United States gained 638,000 jobs in October, more than forecast by economists but less than September’s growth, the government’s monthly jobs data showed Friday.
The economy lost more than 21 million jobs for all of March and April, at the height of lockdowns forced by the COVID-19. It posted a strong rebound of 2.5 million jobs in May and 4.8 million in June. Job gains have slowed since, with 1.8 million in July, some 1.5 million in August and 672,000 in September.
Energy Calendar Ahead
Monday, Nov 9
Private Cushing stockpile estimates
Tuesday, Nov 10
American Petroleum Institute weekly report on oil stockpiles.
Wednesday, Nov 11
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories
Thursday, Nov 12
EIA weekly report on natural gas storage
Friday, Nov 13
Baker Hughes weekly survey on U.S. oil rigs
Precious Metals Weekly Review
Gold jumped almost 4% on the week in one of its biggest post-summer rallies as Biden’s lead in the U.S. election rekindled hopes for an economic stimulus — although rivals aligned with Trump promised to fight such plans.
New York-traded gold for December delivery last traded at $1,952.05 per ounce on Friday after officially settling at $1,951.70, up $28.20, or 3.8%. For the week, December gold rose 3.8%, after hitting a six-week high of 1,961.75.
Spot gold, which reflects real-time trades in bullion, closed Friday’s trade up $1.69, or 0.1%, at $1,951.21. For the week, spot gold rose 3.9%.
“The COVID-19 spread across the US will force a return to lockdowns and make Congress deliver at least a $1 trillion dollars in stimulus by December,” said Ed Moya, analyst at OANDA in New York. “The stimulus trade wave won’t be as big as many anticipated but it should still help gold break the October trading range.”
Democrats, who control Congress, reached agreement in March with the Trump administration and Senate Republicans to pass the Coronavirus Aid, Relief and Economic Security (CARES) stimulus. That package dispensed roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.
Since then, the two sides have been locked in a stalemate on a successive relief plan to CARES. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid.
House Speaker and top Congressional Democrat Nancy Pelosi told reporters on Friday her next immediate priority was to cajole members of the Trump administration to resume Covid-19 stimulus talks disrupted by the election.
Democrats and existing members of the Trump administration have between now and the January 20 inauguration of the next president to hold talks in a so-called “lame duck” session.
“I'm calling on the administration to come back to the table,” Pelosi said. “Congress has committed to passing an Omnibus Appropriations bill (for the Covid-19). This is the core of our work in the lame duck, so we don't have a pandemic killing hundreds of thousands of people and infecting millions more.”
But top Senate Republican and Majority Leader Mitch McConnell indicated that he will continue to fight Pelosi’s plans for a large stimulus. He pointed to economic statistics, including a 1% point drop in the unemployment rate, that showed a smaller stimulus package targeted at the pandemic's effects would be adequate.
"I think it reinforces the argument that I've been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate," McConnell told reporters.