Profit-taking was seen on Friday after stronger-than-expected US non-farm payrolls. While improved job market data might signal better economic outlook in the world’s largest economy, investors remained cautious about the aftermath of Hurricane Sandy and decided to take profit after rallies earlier in the day. In the commodity sector, crude oil prices slumped amid concerns that refinery shut down due to the hurricane would increase supply. It’s expected that oil inventory would show a huge build in the report next week. Gold also plummeted after the employment report as improved job market might lower the urgency of further Fed easing.
The US employment report for October beat market expectations. The number of non-farm payrolls increased +171K last months, compared with the upwardly revised +148K addition in September. The august number was also revised higher to 192K from +142K. The unemployment rate climbed modestly higher to 7.9% from 7.8% a month ago as the labor force participation rate increased from 63.6% to 63.8%. The employment-to-population ratio also rose from 58.7% to 58.8%.
For the coming week, the RBA would be meeting on Tuesday. While the central bank has not yet ended its easing cycle, it would probably pause in November as the latest inflation data surprised to the upside. The ECB and the BOE would also leave the monetary stances unchanged in November.
Energies: Hurricane Sandy likely has done some noticeable damage on the US oil market in terms of both supply and demand. The Colonial pipeline, a critical pipeline in the Northeastern region bringing gasoline, diesel, heating oil and jet fuel from US Gulf coast refiners to the east coast market, remained offline. On the demand side, PADD I is a oil consuming hub, representing 40% of total US demand for gasoline and jet fuel, as well as 30% of total US distillate demand and 29% of total US oil demand. Closure of companies, businesses and transportation infrastructures has both affected the demand and supply of mainly oil products.
Concerning natural gas, the DOE/EIA reported that natural gas storage rose +65 bcf to 3 908 bcf in the week ended October 26. Stocks were +136 bcf higher than the same period last year and +259 bcf above the 5-year average of 3 649 bcf. Separately, Baker Hughes reported that the number of gas rigs rose +8 units to 424 in the week ended November 2. Oil rigs decreased -35 unit to 1 373 and miscellaneous rigs added +1 unit and the total number of rigs slipped -26 units to 1 800. Directionally oriented combined oil, gas, and miscellaneous rigs dropped -14 units to 195 units while horizontal rigs stayed unchanged at 1 105 and vertical rigs dropped -12 units to 500 during the week.
Precious Metals: Gold has once again entered its range-bound trading period as it lacks catalyst in the near-term. In fact, the near-term outlook should be mildly negative for gold. After he US presidential election next week, the focus would be turned to the fiscal cliff which signals that expiration of the Bush era tax holiday and automatic reduction in government expense in the beginning of 2013, the US fiscal deficit would narrow but economic activities would weaken. Meanwhile, renewed concerns were seen in the sovereign debt crisis in the Eurozone as Spanish economy deteriorated further and a Greek court ruled that certain conditions (the pension reform plan) of the Greek bailout were unconstitutional. These may dampen risk appetite and affect gold investment. Yet, the floor of 1700/oz appears to be firm and buying interest should emerge as price falls below that level.
While gold and silver dropped -2.14% and -3.68% respectively last week, PGMs were better off with platinum losing just -0.07% and palladium gaining +0.71%. We believe the relative outperformance in PGMs was due to continued labor-related tension in South Africa. According to Anglo American Platinum, the largest platinum producer, some striking workers have returned to work. Yet, the number was not sufficient for operation to be back to normal. Moreover, the company said it was losing an average of 3 694 oz of platinum per day and the strike since 7 weeks ago has resulted in a loss of 141,640 oz.
Oil and Gold Reports contributed by Oil N' Gold