Commodities round-up: Gold futures retreat as dollar spikes on US rate hike expectations

Precious metals headed lower as the strength of the dollar and rising expectations of a US interest rate hike hammered the commodities market on Tuesday (11 October).

At 2.10pm BST, Comex gold futures contract for December delivery was down 0.22% or $2.80 to $1,257.60 an ounce, with traders pricing in a rate hike by the US Federal Reserve before the end of the year.

The slide came close on the heels of a US Commodity Futures Trading Commission report noting that net-long positions, ie bets on prices going up, in gold futures and options market fell 22% to 205,176 contracts for the week ended 4 October; the biggest drop since the period ended 24 May. Short calls, or bets that the price would fall, rose by 59%; the highest since May 2014.

FXTM research analyst Lukman Otunuga said gold would remain under pressure with prices hovering above four-month lows at $1,257 as speculation mount over the Fed's next move.

"The yellow metal could be destined for steeper declines if the combination of dollar strength and heightened US rate hike expectations entice sellers to install repeated rounds of selling. Attention may be directed towards Wednesday's Fed meeting minutes which if tilted hawkish could expose gold to further losses."

Concurrently, Comex silver was down 0.22% or four cents to $17.62, and spot platinum extended the previous session's decline further, dropping another 0.61% or $5.85 to $959.10 an ounce.

Meanwhile, oil benchmarks retreated from overnight spikes triggered by Russian President Vladimir Putin signalling his intention to join Opec's planned oil production cap.

Speaking at World Energy Congress in Istanbul, Putin said: "Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same. In the current situation, we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.

"We support Opec's recent initiative to cap output and think that at the Opec meeting in November this idea will materialise in a specific agreement, giving a positive signal to the markets and investors."

At 2.36pm BST, the Brent front month futures contract was down 0.24% or 13 cents at $53.21 per barrel, while the West Texas Intermediate was 0.10% or 11 cents lower at $51.24 per barrel, retreating from $51.35, its highest July 2015.

Opec agreed to limit its production to a range of 32.5 milion to 33 million barrels per day (bpd) on 28 September, but will only spell out the nature of the cuts on 30 November. Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB, expects Opec members to reach an agreement on production at their next meeting which will lift Brent crude price closer to $60 (£49m, €54m) per barrel.

"However, Opec has no control over where the non-Opec marginal cost of production is or the potential marginal cost of using something else than oil if possible. With a multitude of references to '$60 per barrel is what US shale oil needs' Opec now naturally seems to aim for this.

"Opec and Russia do have the capacity of reducing production in order to tighten up the oil market balance for 2017. In the longer term though, cutting production in order to support the price is not a viable solution. The price consequence of a possible OPEC intervention is that the front end of the oil curve lifts while the longer dated contracts will still be set by the general oil market economics," Schieldrop concluded.