Weekly Movers: Gold Surges On Weak China Data…
Commodity investors are witnessing some startling trading action this week. Multiple assets are seeing skyrocketing volatility thanks to quickly changing fundamental data.
Here’s a recap of some of the week’s biggest movers and what to expect from them going forward…
Natural Gas
Wow. What a week for this commodity!
Thanks to another brutal round of frigid weather, natural gas is surging to $5.00 mmBtu in today’s trading session. That’s a remarkable gain of 15% on the week.
As you may know, at a draw of 107 billion cubic feet (bcf), yesterday’s EIA natural gas inventory report was in-line with analyst estimates. What’s more, it’s well below last week’s record withdrawal of 287 bcf.
In other words, this week’s EIA data is hardly bullish news.
But here’s the deal…
Investors are now looking beyond weekly inventory readings to total US storage levels.
Due to consistently frigid temperatures this winter, natural gas inventories are 19.8% below last year and 13.2% below the 5-year average. If the cold continues unabated through February and March, we could see total US inventories get quite low.
In fact, some analysts see total US inventories dropping below 1,000 bcf. The last time that happened was in 2003 when natural gas surged from $5 to $12 within two months.
Could natural gas surge that high again this year?
Quite simply… NO.
Things are completely different now than they were in 2003. Thanks to the ongoing US energy revolution, there are abundant quantities of gas ready to hit the US pipeline system. And with gas trading at the highest levels in years, previously reluctant producers are going to jump at the opportunity to sell gas at $5.00.
Bottom line…
Unless there’s a historic run of extended cold weather coming our way, we’re likely seeing a seasonal peak in natural gas prices as I write.
Gold
Gold investors received a nice surprise yesterday morning when China reported a surprising drop in manufacturing activity. The yellow metal jumped $27.70 an ounce to close at $1,264 on the day.
According to HSBC, China’s flash PMI reading fell to 49.6 in January. That’s well below last month’s reading of 50.5, and the lowest level in six months.
Not surprisingly, the weak data is throwing up up some big red flags for investors. If China’s economy is slowing, it could spell trouble for global growth. As a result, the US Federal Reserve is less likely to further reduce US stimulus measures, which will ultimately drive the US Dollar lower.
If this trend of weak China data continues, we’ll likely see gold jump to the next area of major technical resistance at the $1,300.
As you can see, all it takes is a slight change in fundamentals to send commodities on a wild run…
And these moves are precisely what I look for here at Commodity Trading Research. So stay tuned for additional insight!
Until Next Time,
Justin Bennett
Category: Commodity Trading, Gold, Natural Gas
