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Gold continues to decline due to expectations of higher interest rate
The gold price continued to fall on Tuesday due to persistent Middle East tensions, which fueled fears of inflation and higher interest rates around the world. By 2:11 pm, spot gold had fallen 0.4% to $4389.26 an ounce. ET (1811 GMT), after reaching its lowest level since November on Monday. U.S. gold futures for April delivery settled 0.1% lower at $4,402.00. Bart Melek is global head of commodity strategies at TD Securities. He said: "If energy prices continue to rise and the war continues, then it's bad news for gold." He added, "Gold will be under pressure in the second quarter but by the end of the year, I think the outlook for gold should look good again, because we hope that central banks, like the Fed, will have more freedom by then and we can'see the dollar ease off and rates fall." Bullion is no longer a good inflation hedge or a safe place to store money in a high rate environment. The Pakistani prime minister stated on Tuesday that he would be willing to host talks to end the war between the U.S. The war has effectively stopped shipments of about a fifth of the world's oil and natural gas liquefied through the Strait of Hormuz. This has pushed up energy prices, and increased inflation fears. The major central banks have also stated that they are prepared to take action if prices rise due to the war. "The recent price drop is likely to be as much an overreaction, as the massive increase at the beginning of the year. The pendulum for gold has moved from one extreme to the next, according to analysts at Commerzbank. Spot gold has fallen by nearly 17% from its peak on January 29, when it was $5,594.82 and is down 21% since the U.S./Israeli war against Iran began. Silver spot rose 0.4%, to $69.43. Platinum gained 1%, to $1.900.13. Palladium fell 2.1%, to $1.403.75. (Reporting and editing by Sahal Muhammad, Diti Pjara and Maju Sam in Bengaluru)
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Sheriff's Office: No evidence Valero Texas refinery explosion caused by intentional act
The spokesperson for the Jefferson County Sheriff's office said on Tuesday that no 'evidence' has been found to indicate a deliberate act as the cause of the explosion which occurred at Valero Energy Corp's Port Arthur refinery in Texas. Donta Miller is the chief deputy of?the sheriff’s office. On Monday night, 'people familiar with the plant operations' said that they could feel an explosion from a diesel-hydrotreater 11 miles away (18 km). Valero closed down the refinery in order to prevent the fire from being fueled by hydrogen or hydrocarbons. Hydrotreaters remove sulfur from motor fuels using hydrogen in accordance with U.S. Environmental Rules. Valero said on Tuesday that no injuries were reported and that all personnel had been accounted for. The refinery can be found 86 miles (139km) east of Houston. Messages started appearing?in forums online on Monday night, and continued into?Tuesday. They suggested that the explosion 'at the refinery? was a retaliation?for the U.S./Israeli attacks against Iran. (Reporting and editing by Franklin Paul, Nick Zieminski, and Erwin Seba)
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Maria Corina Machado, Venezuela's opposition leader, calls for transparency and security in energy investments
Maria Corina Machado, Venezuela opposition leader, believes that early interest in Venezuela's oil industry is positive. However she has called for greater transparency and contract security. She said in an interview, before her afternoon address at the CERAWeek conference in Houston: "I am here to draw attention to Venezuela and not to delay it." Machado stated that the country could produce up to 5 million barrels a day with an investment of $150 billion. The country currently produces around 1 million barrels of oil a day. She believes that Venezuela's PDVSA, the state-run oil company, will eventually be reduced in size and then transferred to the private sector. Citgo Petroleum, a Houston-based refiner owned by PDVSA, is something she would like to keep in Venezuela as a "strategic asset". Losing Citgo to Venezuela would be detrimental and a mistake for the U.S. "energy security," she said. Machado said, "Until the?last out, in?the final inning, there is a possibility," referring to court proceedings to sell Citgo's parent to creditors. (Reporting and editing by Nathan Crooks, in Houston.)
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Zimbabwe Central Bank tightens policy to limit fuel price increases
Zimbabwe's central banks decided on Tuesday to maintain a?tight?monetary policy?stance, keeping its main lending rate of 35% in order to limit the inflationary effect of fuel prices increases due to the Middle East conflict. In recent months, the annual inflation rate in Southern?Africa has dropped to single digits - for the first time in more than three decades. The central bank was expected to ease its policy soon after the U.S. and Israel war against 'Iran. But now, economists believe it will try to maintain stability following the recent fuel price increases by the energy'regulator. In a press release, it stated that "to limit the second-round effect of fuel price increases...the MPC (Monetary Policy Committee) decided to 'Stay The Course'?of the current monetary policy position." Since September 2024, the bank's policy rate is at?35%. This is part of an effort to?reduce price pressures and boost confidence in a new currency that was launched two years earlier.
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Oil prices are higher, but stocks remain mixed as the war uncertainty continues
The major global stock indexes were mixed Tuesday as oil prices continued their recent sharp gains and concerns remained over the length of 'the Israeli-U.S. War on Iran. The dollar recovered lost ground and U.S. Treasury rates pushed higher. The stock market rose on Monday, after U.S. president Donald Trump announced that he had ordered his military to delay strikes against Iranian nuclear power plants due to "productive discussions" with Tehran. Iran has denied any talks with the United States. Prices of oil rose on Tuesday. U.S. crude oil gained 3.63%, reaching $91.33 per barrel. Brent increased to $98.54. Oil prices are expected to remain high as the Strait of Hormuz is closed and only a fifth of the world’s oil and gas liquefied through it can be shipped. Oliver Pursche is senior vice president at Wealthspire Advisors. He said, "We're seeing some negative sentiment creeping back into the markets today." Investors are mainly focused on oil price, but I think the greater risk is commodity inflation, especially related to agriculture. That could have a?more profound and longer-term effect than oil prices. He also said that "there is still a great deal of confusion and lack clarity regarding Iran, how long military operations will last, and what the implications are for oil and the global trade." This is the main driver." The S&P 500's largest percentage decliners were communication services and technology. The Dow Jones Industrial Average grew 145.83, or 0.30 %, to 46.348.12, the S&P 500 gained 5.77, or 0.09 %, to 6,586.74, and the Nasdaq Composite dropped 70.12, or 0.32% to 21,877.14. The MSCI index of global stocks rose by 4.46 points or 0.45% to 989.37. The pan-European STOXX?600 index grew by 0.54%. Data released on Tuesday showed that the euro zone's private sector growth almost stalled in this month due to a rise in inflation expectations and delivery times. This is a further indication of the tangible impact the war between the U.S., Israel, and Iran has had on the region. He said that the risk of inflation from the war in Iran escalating was "strong enough" to convince him to support keeping interest rates at current levels instead of cutting them. Market expectations were shifting towards a rise in borrowing costs. The yield on the benchmark 10-year U.S. notes increased 3.4 basis points from 4.34% to 4.37%.
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Smithfield Foods reports record quarterly earnings, but flags Middle East cost pressures
Smithfield Foods beat analysts' estimates for the fourth quarter results on Tuesday, thanks to strong?demand. It also said that the Middle East conflict will?raise fuel, corn, and packaging costs. Shares of the?U.S. Pork processors jumped by 5% on the morning market after issuing a positive annual profit and sales forecast. Mark Hall, CFO of the company, said that while input costs are expected to remain high by historical standards they will be lower in 2025. The company has increased prices to offset the rising costs of raw materials. It has also seen an increase in demand as more consumers cook at home due to tighter budgets. Smithfield anticipates that total annual sales will increase by low single-digits compared to analysts' expectations of 1.26%. It also expects an annual adjusted operating income between $1,33 billion and $1.4 billion, compared to the $1.34 billion profit recorded in fiscal year 2025. The outlook takes into account several risks. These include the Middle East conflict which could increase the cost of fuel, petroleum-based products such as packaging and corn prices, as well as raising oil markets. They cautioned, however, that the full impact has yet to be determined. LSEG data shows that the company's quarterly sales increased 7%, to $4.23bn, compared to analysts' expectations of $4.14bn, a result of higher market prices. The packaged?meat?sales?rose by 4.3% from the same quarter last year. Smithfield's major revenue-generating division is this segment. Fresh pork sales increased by 2.1%. The Virginia-based firm?said that it expects pork to "well positioned" as an affordable, healthy option for consumers this year. Analysts had expected 68 cents a share. The company reported a quarterly adjusted 'profit from continuing operations' of 83 cents a share.
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US to launch pilot surveys on energy consumption by data centers
The U.S. Department of Energy’s information arm will launch a pilot survey on Wednesday to gauge the energy consumption of 'the country's' data centers. Silicon Valley has invested hundreds of billions in expanding energy-intensive data centres across the U.S. but it is unclear how much power the sector consumes. Americans are worried about the impact of artificial intelligence on their utility bills. Tech giants have been exploring using coal, natural gas and nuclear power to power their data centres. Tristan Abbey, the head of the Energy Information Administration (EIA), said this at the CERAWeek Conference in Houston. EIA will start the surveys in three States before expanding them to other states. Virginia, which has the largest concentration of data centres in the world, is among the three states. Washington State and Texas are also included. Abbey said that the initial survey questions will cover whether or not data centers use backup power supplies and, if they do, what type of fuels are used. Abbey explained that "ultimately we will have a patchwork quilt of?lots?of different things we know and be able launch a mainstay type survey." The EIA began a survey in?2024 of cryptocurrency mining operations. These are a new type of datacenter, and were surveyed using emergency authorities. Two crypto-mining firms sued, claiming the survey was invasive and rushed. Abbey, who assumed her position in September of last year, explained that this pilot survey would be conducted gradually. (Reporting and editing by David Gaffen in New York, Laila Kearney from New York)
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Investors focus on Middle East developments as gold prices remain stable
The price of gold held steady Tuesday, after hitting a four-month low the previous session. Markets assessed developments in 'the Middle East' and their impact on inflation and interest rates. By 11:00 a.m., spot gold had not changed much from $4,408.77 an ounce. ET (1500 GMT) after it hit its lowest level of $4,097.99 in November on Monday. U.S. gold futures for April delivery steadied at $4,409.30. Bart Melek is global head of commodity strategies at TD Securities. He said: "If energy prices continue to rise and the war continues, it's not good news for gold." He added, "Gold is going to be under pressure in the second quarter. But I think that by the end of the year, gold's outlook should look very good, because we hope by then, central banks such as the Fed will enjoy more freedom and we may see rates and the dollar drop." Bullion, once considered "a safe haven" and an inflation hedge, is no longer attractive in high-rate environments, as it pays no interest. The Pakistani prime minister stated on Tuesday that he would be willing to host talks to end the war between the United States, Iran and other countries. This comes a day after U.S. president Donald Trump backed off his threats to attack Iranian power plants in the wake of what he termed "productive" discussions. The war 'effectively halted the shipments of around a fifth of world oil and natural gas through Strait of Hormuz. This has increased energy prices and fuelled inflation fears. The major central banks have also stated that they are prepared to take action if prices rise a lot more due to the war. The recent price drop is just as likely to be an overreaction, as was the massive increase at the start of this year. The pendulum for gold has "swung" from extremes, according to analysts at Commerzbank. Spot gold has fallen by more than 16% from its peak of $5,594.82 on January 29, and is down about 21% since the U.S. - Israeli war against Iran began on February 28, Silver spot rose by 1.1%, to $69.86. Platinum gained 0.7%, to $1.894.60, while palladium fell 1.3%, to $1.414.75. (Reporting and editing by Sahal Muhammad and Diti Pjara in Bengaluru)
McGeever: Risk of dollar liquidity shock highlighted by Mideast crisis
This week, investors have been dumping dollars amid the turmoil in Middle East. It is a reminder of the potential rocky transition from a dollar-centric world to a multi-polar, fractured one.
Investors seeking relative safety in the world's most liquid asset, the dollar, are boosting its value as the war that has spread across the region since the joint U.S. and Israeli assault on Iran last Saturday.
Equity indices which were the best performers in the first two months of this year have plummeted. South Korea's KOSPI, which rose?50% in February, has fallen nearly 20% in just two days. The dollar has risen by as much as 2 percent in just two days and Treasury yields have also soared.
Matt King, founder at Satori Insights says that this sudden dollar surge has nothing to do with a sudden change in growth or inflation expectations. Money flow is the issue - investors are scrambling for liquidity as they unwind the speculative frenzy that has inflated many markets over recent months.
Investors in a foxhole, despite all their fears of dollar devaluation, still need and want dollars.
Will Dollar Demise remain 'Glastic'?
This brings up the question of what might happen in future crises, if the "long-term erosion" of the dollar's dominance continues.
Since the introduction of the euro currency in 1999 and China's entry into the World Trade Organization (WTO) in 2001, the dollar has steadily declined as the leader of global trade, finance, and foreign exchange reserves.
According to the International Monetary Fund, the U.S. dollar's share in global foreign exchange reserves has dropped to 57% from 70% at the beginning of the 2000s.
The erosion of dollar liquidity was smooth and gradual. This has allowed the global financial system to build buffers for liquidity crises, after the historical shocks in 2008 and 2020.
The U.S. alliances and rules-based order as well as the forces of globalization, which once ensured dollar liquidity lubricated the wheels of?the world economy and markets are now crumbling. In the last year, major trade, political, and military conflicts erupted, making the investment landscape in the world a very dangerous place.
On March 17, Barry?Eichengreen will publish his latest book, "Money Beyond Borders": Global Currencies From Croesus To Crypto.
Eichengreen examines the 2,500 year history of money and the reasons why certain currencies are important and then disappear. He also assesses the future of the dollar, as well as the role that cryptocurrencies and blockchain will play.
He argues that the dollar is still the dominant currency for FX reserves, international trade, finance, and invoicing. However, he worries that the decline of the dollar on these fronts could accelerate.
Eichengreen: "I am much more concerned than I used to be in the past." There is no obvious alternative to greenbacks, so we must continue to pray that the transition will be gradual and smooth. "But I think we are learning that things don't happen as smoothly anymore."
"A DELICATE POINT in Time"
The last few days were anything but smooth and have shown how desperately the world needs dollars.
According to the Bank for International Settlements, 89% of all foreign exchange transactions are on the U.S. Dollar's side. This is the highest level in 25 years. The euro is the second most traded currency, accounting for 29% of all FX transactions.
Additionally, the dollar is responsible for about half of all international payments. According to a Federal Reserve report, if you include intra-eurozone payments in the calculations, this share increases to about 60%. About 55% of bank claims in foreign currencies and international are denominated as dollars, while 60% of liabilities have the same currency.
According to estimates, up to 20% of crude oil is priced in currencies other the dollar such as the euro and Chinese yuan. That means that around 80% of the world's crude oil trade is still priced in dollars.
Eichengreen has said that he believes a multi-polar financial and monetary system for the global economy would be beneficial to the world. Just as a diverse ecosystem is healthy for the planet.
We're still not at the point where we could rely on other global sources of liquidity to?replace the dollar. We are therefore at a delicate time," says?Eichengreen.
This seems like a bit of an understatement at a time where trade wars, and even real wars, are raging.
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(source: Reuters)