The End of the Petrodollar (Week Ending 6.14.24)

Anthony Anderson

Updated: June 14, 2024

Higher oil prices

A Daily Journey Through the Week's Market

Monday - 6.10.24: Gold prices posted slight losses early Monday, with silver prices rising as precious metals bulls attempted to stabilize after Friday’s stronger U.S. jobs report boosted the dollar and Treasury yields. August gold fell $2.70 to $2,322.30, while July silver rose $0.45 to $29.89. Key events this week include inflation readings and the FOMC meeting, with Fed Chair Jerome Powell's Wednesday press conference being highly anticipated. The market currently sees a 60% chance of a rate cut by November. Additionally, reports suggest Saudi Arabia may not renew its "petrodollar" agreement with the U.S., potentially aligning more with China.

Tuesday - 6.11.24: Gold and silver prices rose early Tuesday after a tame U.S. inflation report for May. August gold increased by $15.60 to $2,341.90, and July silver rose by $0.659 to $29.90. The CPI remained unchanged month-on-month and rose 3.3% year-on-year, with core CPI also slightly lower than expected. This dovish report led to a sharp sell-off in the U.S. dollar, falling Treasury yields, and a rally in stock indexes. Traders now await the Federal Reserve's FOMC meeting results and Chairman Jerome Powell's statement on Wednesday.

Wednesday - 6.12.24: Gold is struggling to maintain the $2,350 an ounce level as the Federal Reserve reduces its interest rate cut expectations. The Fed kept interest rates unchanged at 5.25%-5.50%, now projecting only one rate cut this year, down from three in March. The updated dot plot shows the Fed funds rate ending the year above 5.00%. August gold futures last traded at $2,345.80 an ounce, up 0.79% on the day. Despite positive gains, gold remains below the critical resistance point. The Fed acknowledged inflation has eased but remains elevated, keeping its options open for future policy adjustments.

Thursday - 6.13.24: Gold prices are reaching new highs after worse-than-expected labor market data showed that new unemployment claims rose to 242,000 for the week ending June 8, surpassing the forecasted 224,000. The gold market rallied following the data release, with spot gold climbing from near session lows of $2,305 per ounce to $2,326.80 per ounce, up 0.07% on the day.

Friday - 6.14.24: Following Thursday’s session, gold and silver experienced slight declines. These movements were influenced by a rally in the US dollar and a hawkish stance from the Federal Reserve, which spooked investors into re-evaluating their positions in precious metals. The strengthening dollar typically pressures gold and silver prices downward as these commodities become more expensive for holders of other currencies

The End of the Petrodollar: Shifting Power Dynamics and Economic Implications

Saudi Arabia has allowed its petrodollar agreement with the U.S. to expire, marking the end of a 50-year financial arrangement that cemented the U.S. dollar's dominance in global oil transactions. This agreement, established in the early 1970s, required Saudi Arabia to price its oil in USD and invest surplus revenues in U.S. Treasury bonds, while the U.S. provided military support to the kingdom. The expiration of this agreement signals a potential shift in global power dynamics as Saudi Arabia, now a member of the BRICS bloc, explores broader alliances and alternative energy sources. The kingdom's move towards renewables and its openness to accepting other currencies for oil could weaken the USD's global influence and impact U.S. financial markets. Analysts predict minimal immediate effects but acknowledge long-term risks, including higher inflation and interest rates in the U.S. Meanwhile, the potential rise of a BRICS currency backed by commodities like gold might benefit gold prices, highlighting the changing landscape of global economic power.

Gold and Silver Prices Adjust Following Tame U.S. Producer Price Index Report

Gold and silver prices experienced modest rebounds after initial declines, influenced by a lower-than-expected U.S. Producer Price Index (PPI) report for May. August gold fell by $21.00 to $2,333.40, while July silver dropped $0.827 to $29.45, marking a five-week low. The PPI decreased by 0.2% month-on-month, contrary to market expectations of a 0.1% rise, and core PPI remained unchanged, further calming inflation fears. This report follows a mixed reaction to the Federal Reserve's hawkish outlook, which included a reduced number of anticipated rate cuts and higher inflation projections for 2024 and 2025. Despite the cooler PPI data, markets remain cautious as the Fed's stance dampened the initial bullish sentiment spurred by a tame Consumer Price Index (CPI) report earlier in the week.

UBS Recommends Buying Gold on Price Dips

UBS analysts have advised that recent dips in gold prices, such as the over 3% decline seen last Friday following positive US employment data, should be viewed as buying opportunities. Despite the positive surprises in employment and earnings data, UBS points out key factors to watch this week, including the May US Consumer Price Index (CPI) and the Federal Reserve meeting. Concerns arose from China’s lack of reported gold reserve additions in May, but UBS suggests potential under-reporting by the IMF. They recommend purchasing gold around $2,250-$2,300 per ounce. UBS acknowledges that near-term CPI increases could pressure gold prices but believes strong job market data might not fully reflect economic conditions, citing a rise in the unemployment rate. Looking forward, UBS expects the Fed to project two rate cuts in 2024, with a possible rate cut in September as inflation moderates. Central bank gold buying remains robust, with Poland increasing reserves in May. UBS anticipates total demand for gold to reach 950-1,000 metric tons in 2024, viewing gold as a valuable hedge amidst geopolitical tensions and the upcoming US elections, and recommends a 5% allocation in a USD-balanced portfolio.

Moscow Stock Exchange Suspends US Dollar and Euro Trading Amid New Sanctions

In response to the latest round of US sanctions, the Moscow Stock Exchange has suspended all trading in US dollars and Euros, impacting both share and money market trades. This decision follows the US Treasury Department's sanctions on over 300 Russian entities, targeting the nation's financial infrastructure. The move aligns with the BRICS alliance's ongoing efforts to reduce dependency on Western currencies, emphasizing de-dollarization. The Russian Central Bank assured that US dollar and Euro funds remain safe despite these "restrictive measures." This development coincides with BRICS' decision to settle trade in native currencies, further reducing reliance on the US dollar.

Trump Advocates for US-Based Bitcoin Mining to Counter CBDCs

Donald Trump, the Republican presidential candidate, has called for all remaining Bitcoin to be mined in the U.S., positioning it as a defense against central bank digital currencies (CBDCs). Early Tuesday, Trump met with executives from Nasdaq-listed bitcoin mining firms CleanSpark Inc. and Riot Platforms, expressing his belief that domestic Bitcoin mining would help the U.S. achieve energy dominance. Trump criticized President Biden's stance on Bitcoin, claiming it benefits adversaries like China and Russia. He emphasized on Truth Social that increased U.S. mining could stabilize the energy grid and bolster national security against CBDCs. Currently, major Bitcoin mining operations are located in China, Central Asia, El Salvador, and parts of Europe, but Trump aims to shift this focus to the U.S., leveraging local resources.

May Inflation Slows, Consumer Prices Rise Less Than Expected

The latest data from the Bureau of Labor Statistics shows that US inflation eased in May, with the Consumer Price Index (CPI) remaining flat from the previous month and rising 3.3% year-over-year, both below economist expectations. Core CPI, which excludes volatile food and gas prices, increased by 0.2% month-over-month and 3.4% annually, marking the lowest core reading since June 2023. The report, released ahead of the Federal Reserve's policy decision, saw markets respond positively with a drop in the 10-year Treasury yield. Despite this cooling inflation, it remains above the Fed's 2% target. The labor market also showed strength, with 272,000 nonfarm payroll jobs added in May, and wages rising 4.1%. Investors now anticipate fewer interest rate cuts in 2024, and the probability of a rate cut at the Fed's September meeting has increased to 69%. Key contributors to the inflation print included sticky shelter prices, while energy prices fell due to a significant drop in gas prices. Other notable changes were in the indexes for medical care, used cars and trucks, and education, while airline fares and new vehicles saw decreases.

Global Interest Rate Peak Supports Gold Prices

Despite the Federal Reserve's cautious stance on adjusting its monetary policy, global interest rates have peaked, offering support to the gold market. Analysts highlight that the Bank of Canada (BoC) and the European Central Bank (ECB) have begun cutting rates in response to easing inflation, even as the Fed signals it is not yet ready to lower rates. BoC Governor Tiff Macklem, at the International Economic Forum of the Americas, indicated that further rate cuts are possible if inflation continues to ease, although rates will remain above pre-pandemic levels. Bundesbank President Dr. Joachim Nagel echoed a cautious approach, emphasizing the ECB's data-dependent stance and the ongoing battle against inflation. Despite tempered expectations from the ECB, markets anticipate multiple rate cuts this year from both the ECB and BoC. This divergence in global monetary policies is expected to bolster gold prices, which have maintained critical support at $2,300 an ounce. As global rates peak, the gold market benefits from the increased likelihood of further rate cuts by major central banks outside the U.S.

Next Week’s Key Events

Monday, June 17

● 8:30 am: Empire State Manufacturing Survey (June)

● 1:00 pm: Philadelphia Fed President Patrick Harker speech

Tuesday, June 18

● 8:30 am: U.S. Retail Sales (May)

● 9:15 am: Industrial Production & Capacity Utilization (May)

● 10:00 am: Richmond Fed President Tom Barkin podcast interview

● 1:20 pm: St. Louis Fed President Alberto Musalem speech

● 2:00 pm: Chicago Fed President Austan Goolsbee speech

● 2:30 pm: Dallas Fed President Laurie Logan speech

Wednesday, June 19

● Juneteenth Day Holiday - Markets Closed

Thursday, June 20

● 8:30 am: Initial Jobless Claims (June 15)

● 8:30 am: Housing Starts (May)

● 8:30 am: Philadelphia Fed Manufacturing Survey (June)

Friday, June 21

● 9:45 am: S&P Flash U.S. Services PMI (June)

● 9:45 am: S&P Flash U.S. Manufacturing PMI (June)

● 10:00 am: Existing Home Sales (May)

● 10:00 am: U.S. Leading Economic Indicators (May)


Federal Reserve Speeches: Federal Reserve officials' speeches, including those from Harker, Barkin, Musalem, Goolsbee, and Logan, can influence market expectations regarding future monetary policy. If their comments collectively suggest a more hawkish stance, favoring higher interest rates, this could lead to a stronger dollar and higher bond yields, making gold and silver less attractive as they do not yield interest, thereby potentially decreasing their prices. Conversely, dovish comments (favoring lower interest rates) could support higher gold and silver prices.

Empire State Manufacturing Survey (June): This report provides insight into manufacturing activity in New York state. A stronger-than-expected reading can indicate economic strength, potentially leading to higher interest rates which could negatively impact gold and silver prices as they yield no interest.

U.S. Retail Sales (May): Retail sales data reflects consumer spending, a major component of economic growth. Higher retail sales could signal a robust economy, leading to increased expectations of interest rate hikes, which can negatively affect precious metals.

Industrial Production & Capacity Utilization (May): This report measures the output of factories, mines, and utilities. Higher industrial production can be indicative of economic growth, potentially leading to higher interest rates, which can negatively impact gold and silver.

Initial Jobless Claims (June 15): This report indicates the number of people filing for unemployment benefits. Lower-than-expected claims suggest a strong labor market, potentially leading to higher interest rates, which can negatively impact precious metals.

Housing Starts (May): This report measures new residential construction activity. Higher housing starts indicate economic strength, potentially leading to higher interest rates, negatively affecting gold and silver.

Philadelphia Fed Manufacturing Survey (June): This survey provides information on manufacturing activity in the Philadelphia region. Strong results can indicate economic growth and higher interest rates, negatively impacting precious metals.

S&P Flash U.S. Services PMI (June): This index measures the performance of the services sector. Strong readings suggest economic growth, potentially leading to higher interest rates and negatively impacting gold and silver.

S&P Flash U.S. Manufacturing PMI (June): Similar to the services PMI, this index measures manufacturing activity. Strong results can lead to higher interest rates, negatively affecting precious metals.

Existing Home Sales (May): This report measures the number of previously owned homes sold. Higher sales indicate a strong housing market, potentially leading to higher interest rates, which can negatively impact gold and silver.

U.S. Leading Economic Indicators (May): This index forecasts future economic activity. Strong readings suggest robust economic growth, potentially leading to higher interest rates, negatively impacting gold and silver.

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