Commodities round-up: Gold stems steep decline triggered by US rate hike expectations

Gold futures led the precious metals market marginally higher on Wednesday (5 October), following a massive overnight sell-off triggered by heightened expectations of an interest rate hike by the US Federal Reserve.

At 1:35pm BST, Comex gold futures for December delivery were up 0.54% or $6.90 to $1,276.60 an ounce, remaining below the $1,300 level; a first since 24 June 2016, the day after the UK voted to leave the European Union.

Jameel Ahmad, vice president of market research at FXTM, said the reasoning for the possibility of further declines in the gold price rests on US interest rate expectations. "The Fed appears committed towards raising interest rates before the end of the year if you take into account their public comments on the matter.

"Investors have still not priced this into the financial markets and this means traders would find the opportunity to price in further declines into the value of gold."

However, Fawad Razaqzada, market analyst at Forex.com, opined that gold's plunge was not entirely a "dollar story" as the yellow metal priced in the pound's fall too.

"Furthermore, as well as technical selling and the impact of the dollar, one other big reason for gold's slump was the falls in government bond prices – that's to say the rally in yields – which also discouraged investors from holding onto gold and silver, assets that pay no dividend or interest, unlike equities and bonds."

Elsewhere in the precious metals market, Comex silver futures also registered an uptick of 0.79% or 14 cents to $17.92 an ounce, while spot platinum fell 0.22% or $2.13 to $983.62 an ounce.

Meanwhile, the oil market's Opec infused rally continued for yet another session with leading benchmarks staying in intraday positive territory. Late on 28 September, the cartel said it had agreed to limit production to a range of 32.5m to 33m barrels per day (bpd), with further details expected on 30 November at its next meeting in Vienna, Austria.

At 2:05pm BST, the Brent front month futures contract was up 1.77% or ¢90 to $51.77 per barrel, while the West Texas Intermediate 1.85% or ¢89 higher at $49.59 per barrel.

Analysts at Vienna, Austria-based JBC Energy said oil futures were largely stable on a day-over-day basis with the market perhaps considering what to make of a growing disconnect between the physical and the financial market.

"The financial players likely consider that they have the edge as a lot is going in their favour. Crude prices have returned to $50 per barrel, margins are quite high, and seasonal refinery maintenance is on its way out without having triggered a significant widening in futures contangos."

More to the point, JBC analysts opined that Opec has given a clear signal to the world that it is willing to reassume the role of global supply manager after a two-year hiatus. "Overall, Opec's looming return will likely keep many money managers from going short and may even trigger some to switch sides to the long camp."