High risk aversion weighs on oil and supports gold - Commerzbank

Before the British EU referendum, risk aversion remains high on the market. Cyclical commodities should thus remain under pressure, said Barbara Lambrecht, analyst at Commerzbank. The oil price will probably hover below USD 50 per barrel until Friday. The gold price, in contrast, should continue profiting and climb to new highs for the year, she notes.

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“The price for Brent oil has slipped back below USD 50 a barrel this week. This owed less to the fundamental environment and more to the fact that risk aversion in the market has risen considerably ahead of the British EU referendum. High uncertainty should keep the price in check until the result of the vote is announced. Should the UK decide to remain in the EU, the price will probably recover by the end of the trading week and soon climb above USD 50 again: After all, the energy agencies have just confirmed that at present the supply of crude oil is only just sufficient to cover demand.”

“Gold, in contrast, is profiting from the uncertainty ahead of the referendum, especially as the Fed was also prompted to wait and see. The gold price has climbed to a two-year high and, at a good USD 1,300 a troy ounce, is now more than 20% higher than at the start of the year. The rally should continue for now. And it does not make a difference that on Tuesday Swiss gold exports will probably confirm low Asian buying interest. In April, exports to China and Hong Kong reached the lowest levels since August 2014. We consider the weakness in Asian demand to be temporary in nature anyway and expect a notable recovery in the second half of the year. High physical purchases in the western industrialised countries, however, are an important pillar at present. This view is supported by high Swiss gold exports to the UK as well as by strong flows into gold ETFs. A vote for Brexit should propel prices further upwards. But should the UK decide to remain in the EU, there is a risk of a setback on Friday. After all, the gold price has risen by around USD 100 a troy ounce in June. Net long positions of speculative investors, which had already been very high, were probably increased further.”