Commodities. Oil and Gold Daily - August 11, 2017

> Oil retreats on risk-off sentiment, profit-taking amid uncertainty and OPEC report. Brent for October delivery started the day yesterday on an upbeat note, gaining $1/bbl to reach an intraday high of $53.6/bbl. But later, on the New York open, it started to retreat and suffered heavy losses throughout the day to settle at $51.9/bbl, down $0.8/bbl. We attribute this to three short-term factors. The most significant one is risk-off sentiment, driven mostly by the tension between the US and North Korea. Oil is a risky asset and, as a result, fell sharply, along with other risky assets, when money started flowing toward lower-risk investments. Yesterday, Donald Trump continued the war of words between the US and North Korea, saying that his previous remark about unleashing "fire and fury" was not tough enough, and, by doing this, he may have increased the chances of a military conflict. North Korea, meanwhile, was reported to be taking steps to carry out its threat to strike the US military base in Guam. We expect the risk-off sentiment to pressure prices again today.
The second factor that drove oil lower yesterday was profit-taking. Brent had risen by almost $6/bbl since late July and by $1.7/bbl since early Wednesday. We think that the market is increasingly exposed to profit-taking in 2H17, as in 1H17 many hedge funds got burned on long contracts (according to CFTC data analysis and judging by recent closures of large hedge funds) and are now likely to be more cautious in their investment strategies, taking profits on smaller margins. The last time Brent was trading close to $54/bbl was in late May and we think that, given the recent price gains, it was rather tempting to take profits at $53.6/bbl yesterday.
The third factor, but not the least important, was the OPEC monthly production report for July. Even though it (released at 13:45 Moscow time) did not directly rattle the market, it did impact sentiment, confirming expectations that OPEC production had increased in July because of further increases in Libya and Nigeria. According to the report, compliance on the production cut deal in July was around 87%, down from the 100% figures seen earlier in the year. The IEA will issue their monthly report, which will also give OPEC production numbers for July, today at 11:00 Moscow time, but it is unlikely to impact prices. Baker Hughes data will come out at 20:00 Moscow time; it, however, may give a slight boost to prices if it shows another decrease in the number of active US oil rigs.
> Gold presses higher on safe-haven bid and weak PPI data. As we mentioned above, the US and North Korea do not appear willing to work out their differences and seem to be moving closer toward a direct military conflict day by day. Yesterday gold continued to benefit from the threats coming from both sides, rising another $10/oz from $1,275/oz early in the day yesterday. It is currently trading around $1,285/oz. Further support for gold, via a blow to the US dollar, came from weak US producer price index readings for July. The PPI fell 0.1% m-o-m, while a 0.1% rise had been expected. The y-o-y reading came in at 1.9%, below the 2.2% consensus forecast. Today investors are waiting for the CPI data due from the US at 15:30 Moscow time. If core inflation misses expectations (0.2% m-o-m and 1.7% y-o-y), this could concern the Fed, weakening the chances of another rate hike this year. In this case, gold could once again emerge a winner, driven higher by consequent declines in Treasury yields and the dollar. However, we think that the more gold gains on geopolitical uncertainty, the less affected it will be by economic data.