Gold prices crumble under stronger dollar, rate hike expectations

Monday, November 23, 2015

Gold investors were hopeful that last week’s choppy trading potentially signalled that a floor was developing. With spot prices for the precious metal having lost over 6.8% since the start of the month, as prices plummeted from $1,150/oz towards $1,070/oz, market participants were offered some relief as prices picked up towards $1,080/oz. However, it looks as if the under pressure outlook which has seen spot prices close lower in in sixteen out of the last nineteen sessions is set to continue as expectations of a December rates rise by the US Fed enter the frame.

San Francisco Fed President John Williams proffered strong hints on Friday, stating that there was a “strong case” for the Fed to increase rates in December, but as is generally the case with central bankers this recommendation was made on the condition that US economic data continued to improve. Accordingly, investors will be paying close attention to the second reading of Q3 GDP data, out tomorrow, while consumer confidence and manufacturing activity gauges will be watched closely while labour market data in the run up to the December FOMC meeting will be payed special attention as investors look for any reason why the Fed wouldn’t lift rates.

The commodity rout continues with industrial metals, oil and gas leading the way lower, largely driven by a stronger dollar and a growing fundamental imbalance. The dollar index remains well supported as it slowly continues its charge higher, attempting to breach near term resistance towards 100.00 with levels this morning hovering just below around 99.831 as the greenback gains momentum from Friday’s close against a basket of major currencies.

The stronger dollar, which has gained over 3.5% so far this month, and weaker demand outlook has seen the base metals complex take a battering as investors look to limit risk taking. Three month LME copper contracts have been among the worst performing metals this month, trading over 13% lower with prices starting this week on the back foot as the red metal traded below $4,450/tonne early on this morning. Nickel has consistently been the standout worst performing base metal not only this month or this quarter but this year, having lost over 45% since the start of the year, with the metal trading around $8,375/tonne early on, extending the bear run for the sixth straight session. Even falling LME warehouse stocks of nickel, which have come off over 22% since the start of October from 450K tonnes to 415K tonnes, are unable to help address the current supply/demand imbalance. With the expectations of a US rates rise incoming we could see commodities face further headwinds as investors re-evaluate metals and mining group’s prospects in a higher interest rate environment.

Gold prices plummet as investors pull out of SPDR Gold Trust ETFs

GDTRGOLD Index SPDR Gold Trust 2015 11 23 07 33 04

Dollar index looks to target 100.00

DXY Curncy DOLLAR INDEX SPOT 2015 11 23 07 46 40

LME nickel prices under considerable pressure 

LMNIDS03 Comdty LME NICKEL 3 2015 11 23 07 58 13

Events for today

JP Market Holiday 

0855

DE

Nov

Markit Manufacturing PMI

0900

EZ

Nov

Markit Manufacturing PMI

1330

US

Oct

Chicago Fed

1445

US

Nov

Markit Manufacturing PMI

1500

US

Oct

Existing Homes Sales

Topics: Copper, US Fed, Gold, DXY, LME, Nickel
More from: Kash Kamal