Source: Broker China

During the National Day holiday this year, overseas market trends diverged, and crude oil and gold dived sharply, which attracted particular attention. Analysts expect that there may be major adjustments in the short term after the resumption of domestic energy commodities and precious metals, but the resurgence of the conflict between Palestine and Israel has brought more variables to global commodities.

Crude oil led the decline in overseas markets

Judging from the performance of the international market during the long holidays, commodities generally fell by more or less, while crude oil futures led the decline.

Zheshang Futures statistics show that during the long holiday period, the cumulative decline in the New York WTI crude oil futures contract for November reached 12.33%, followed by the decline of 10.43% for the Brent crude oil December contract. Overseas varieties such as lithium carbonate, palm oil, soybean oil, soybean meal, silver, and gold have all declined sharply.

Dong Dandan, chief analyst of CITIC Construction Investment Futures Energy, said that during China's 11th holiday, crude oil experienced a bloody decline. The pre-holiday market is still trading at low levels of Cushing's inventory, and WTI's position may be forced; during the holiday season, yields on long-term US treasury bonds rose sharply, the US dollar index continued to rise, long-term high interest rates could trigger a recession in the US economy, and the risk asset crude oil was sold off.

According to Dong Dandan's analysis, on the one hand, the crude oil supply side is slightly weak. Russia has once again marginally relaxed diesel export controls, allowing continued exports of diesel transported by pipeline to the port. According to some sources, Saudi Arabia is willing to increase production at the beginning of next year, provided that oil prices remain at a high level. Oil rigs in the US continue to decline, and shale companies are less motivated to invest; instead, they are increasing production by continuously improving technology and efficiency. On the other hand, the demand side of crude oil is still performing well. China's manufacturing PMI index for the 11th period was higher than expected, and US employment growth accelerated in September. These are all signs that the Chinese economy is improving and the US economy is resilient.

In her opinion, the probability that the oil price trend will weaken is small. The bulls have suffered greatly in the past week, and oil prices have fluctuated steadily in demand. Specifically, when it comes to investment strategies, it is recommended to leave the market alone and wait and see for the time being.

Gold surprises with “nine consecutive days”

Another high-profile commodity, gold, was also sluggish during the long holidays.

As can be seen from the gold futures trend chart on the New York Mercantile Exchange, from September 25 to October 5, local time, New York gold experienced a rare “nine consecutive day.” Analysts believe that higher US bond yields and a stronger US dollar are the main reasons for the weakening price of gold.

The upfront trend of RMB gold prices was clearly stronger than overseas, but the last few trading days before the holiday season accelerated, and the price difference was rapidly narrowing. On September 28, gold futures on the Shanghai Futures Exchange closed down 1.88% to 459.5 yuan/gram, and fell once intraday to 455 yuan/gram.

Most professionals are not optimistic about the price trend of gold in the fourth quarter.

Wang Rong, assistant director of the Guotai Junan Futures Research Institute, believes that whether it is the conflict between employment data and inflation data, or between economic forecasts and interest rate predictions, it all shows that the soft landing expectations given by the Fed seem too optimistic, and the market is not paying for it. The CME forecasting tool shows that there is still a big discrepancy with the Fed's bitmap. In the remaining quarter of 2023, transaction conflicts will focus on “who is right and who is wrong”, based on the performance of some core data. Overall, precious metals may not be able to perform well, but the price center will remain stable at a high level.

Domestic gold prices were clearly strong compared to international gold price trends before. Driven by the mentality of “buy up, don't buy down,” spot gold consumption such as jewellery was strong. However, this momentum is likely to be reversed by high gold prices.

According to the World Gold Council report, the return of average values, compounded by possible short spreads, may be a driving factor in the recent slight decline in domestic gold premiums. However, this is probably only auxiliary driving. The association believes that China's gold supply and demand situation needs to be significantly mitigated before the price difference can return to normal levels. In particular, in the fourth quarter, when the peak domestic demand season is rapidly approaching, domestic gold premiums are likely to rise seasonally. Meanwhile, the continued rise in RMB gold prices may affect domestic gold consumption. So far in 2023, rising domestic gold prices have been a key factor hindering demand recovery, and may continue to curb consumer enthusiasm, which in turn may have a negative impact on peak gold demand seasons such as the 11th Golden Week. However, judging from the historical situation, no matter what method is used, the supply and demand of gold will eventually reach a certain balance.

The resurgence of the conflict between Palestine and Israel has added variables

However, the resurgence of the conflict between Palestine and Israel has brought more variables to global commodity markets.

According to Xinhua News Agency, the Palestinian Islamic Resistance Movement (Hamas) announced on the 7th a military operation codenamed “Al-Aqsa Flood” against Israel, and said it has now launched at least 5,000 rockets into Israel. Israeli Prime Minister Binyamin Netanyahu issued a statement on the 7th saying that Israel has entered a state of war and has given instructions to mobilize reserve forces to fight back.

Currently, the military conflict continues to rage. According to Global Network, citing foreign media reports, the conflict between Palestine and Israel has caused more than 500 deaths on both sides.

“At this stage, the impact of the conflict between Palestine and Israel on the international commodity market is still limited. Both parties are not important commodity stakeholders, and there will be no price fluctuations like during the Russia-Ukraine conflict. Judging from the past, geopolitical conflicts will give a certain boost to the price of gold. However, if the conflict between Palestine and Israel continues to escalate and even affect the stability of the Middle East region, it will definitely have a profound impact on the crude oil market.” According to an analysis by some industry insiders.

Editor/Somer