Oil recovers, gold stays safe and what’s with Bitcoin?

By Jonathan Jackson. Published at Apr 24, 2020, in Market Wrap

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Key commodities including oil and gold demonstrated substantial upward momentum at the end of the week, a far cry from the oil price dipping into negative territory as West Texas Intermediate Crude hit the lowest level on record on Monday.

For the first time in history crude oil prices fell into negative territory as West Texas Intermediate, the US benchmark, traded as low as negative US$40.32 per barrel in a day of chaos in oil markets. The settlement price on Monday was -US$37.63, compared to US$18.27 the previous Friday.

The world is awash with oil, and with storage capacity in refineries diminishing and demand remaining suppressed, it is hard to see a way forward.

Earlier in the week, eToro analyst Adam Vettese wrote: “Coronavirus is rewriting the rules of the global economy in front of our very eyes. With oil demand virtually non-existent, this quite amazing sell-off is almost entirely down to fears over storage.

“It’s worth noting that Brent, the other major oil type, does not have the same storage issues as US crude, meaning the oil producers with the biggest US exposures will be hit the hardest.

“The reaction of Asian markets overnight shows how this has spooked investors and it’s clear now that OPEC+ will have to agree further cuts in order to boost oil prices.

“In the meantime, this has caused yet another headache for governments and central bankers, who are desperately trying to contain the economic fallout of Covid-19.

“Such a sharp plunge in the price of oil could cause a rapid slowdown in global inflation and some countries may even suffer deflation off the back of this. It’s a headache that central bankers and governments don’t need at this time as they try to keep their economies afloat during the crisis."

Investors responded to the dip in oil by flocking to the strengthening dollar.

Surprisingly, Bitcoin was also on investors’ agendas.

“Whilst stock markets, gold and treasury yields are currently down, bitcoin remains steady at $6,931,” said analyst Simon Peters.

“With the bitcoin halving fast approaching, where miners will see the amount of bitcoin mined from each node reduced by 50 per cent, it could be that investors are choosing not to sell their holdings as we might expect, and instead are staying in bitcoin so as not to miss out on the anticipated gains in the months following the halving.

“Last month’s rush to cash hit bitcoin especially hard. This time around, could the impending halving have mitigated outflows from crypto into cash?”

Oil looking up

As alluded to earlier, sentiment for oil looks to be swinging north.

One of the main catalysts behind the recovery in the US was a rebound in the oil price, accompanied by news that President Trump was looking at measures that could be taken to support US oil producers.

There continues to be positive rhetoric around reopening the economy, and this also provided positive sentiment.

Trading in oil markets has thus normalises. However, the fundamental problem of a growing oversupply of crude in the global economy persists.

By Friday WTI Crude leapt 23.8 per cent.

Gold still a safe haven

In the flight to safe haven investments, gold received support and it is now back above US$1700 per ounce.

For the last six weeks gold futures have traded from a low on the week of 16 March at $1450 to current pricing today of $1750, a $300 price gain.=

Gold prices edged up to daily highs this week after the release of preliminary manufacturing and service-sector sentiment data.

Part of the sharp rise in gold is due to the initiation of quantitative easing measures in the US.

COVID corner

Highlighting the fluctuations of stocks attempting to make COVID-19 breakthroughs is NASDAQ listed Gilead (NASDAQ: GILD), which last week announced it had “encouraging” results from early vaccine testing of its remdesivir treatment.

Investors went into frenzied buying mode. However, they were left disappointed when this week the company announced the antiviral drug flopped in its first randomised clinical trial.

Gilead was down 4.3% on Friday morning.

To Gilead’s credit, it has been upfront in telling the market it is too early to know whether remdesivir is a successful treatment against COVID-19. Although on Friday, it rebutted claims the trial failed, stating the study’s finding were inconclusive.

"We regret that the WHO prematurely posted information regarding the study, which has since been removed. The investigators in this study did not provide permission for publication of results," a Gilead spokesperson said in a statement to CNBC.

"Furthermore, we believe the post included inappropriate characterizations of the study. Importantly, because this study was terminated early due to low enrolment, it was underpowered to enable statistically meaningful conclusions," according to Gilead. "As such, the study results are inconclusive, though trends in the data suggest a potential benefit for remdesivir, particularly among patients treated early in disease."

How far away any company is from finding a treatment or vaccine is anybody’s guess. Investors would do well to take a measured approach to COVID-19 news and not just jump on a sentiment wave.

Gilead could still play a role, along with countless other companies, so make wise decisions not rash ones.

Aussie stocks to watch

Despite market fluctuations, there are always stocks to watch and the small cap space in Australia throws up a few to keep an overall eye on.

Jupiter Resources Limited (ASX: JPR) was up as high as 173% this week on the back of its quarterly, bucking the oil sell of trend.

Delecta Limited (ASX: DLC) was as high as 75% up for the week, doubling their stock price in a day and receiving a speeding ticket for their troubles.

Orbital Corporation Limited (ASX: OEC) was up 10% after signing a contract with leading aerospace and defence technology company Northrop Grumman Corporation for the development of a hybrid propulsion system for a Vertical Take-Off and Landing unmanned aerial vehicle.

And let’s not forget Finfeed writer Trevor Hoey’s stock of the week: Shaver Shop (ASX: SSG). Click below to find out what piqued Trevor’s interest.

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