Gold was up a shade on Thursday after the dollar flip-flopped in the wake of mixed U.S. data and as scepticism grew over whether OPEC members would be able to implement production cuts that could fuel inflation.
Gold prices ended the U.S. day session firmer Thursday and were lifted by concerns about a big German Bank staying liquid and by higher crude oil prices. December Comex gold was last up $3.00 an ounce at $1,326.80. December Comex silver was last up $0.079 at $19.20 an ounce.
The oil-production agreement announced Wednesday by OPEC members may end up helping gold, says HSBC. Normally, oil and gold tend to move together, although the relationship has not been pronounced lately, the bank points out. The OPEC deal to cut output was the first since 2008. “If the agreement is as important as the financial media are reporting, then we believe gold may be impacted,” HSBC says. “Further oil price rallies may feed more convincingly into the gold market, especially if other non-oil commodities also rally, and the broader commodity indices, such as the GSCI, rise. This could help stabilize gold prices, which have clearly been on the defensive recently.”
Gold-market participants seem to be shrugging of ideas that the Federal Open Market Committee will hike U.S. interest rates in December, says Commerzbank. Several officials, including Cleveland Fed President Loretta Meister and Kansas City Fed President Esther George, have made comments favoring monetary tightening. Still, Commerzbank says that gold-market participants “appear at present to be ignoring remarks by a number of Fed members that hint at a rate hike in December. What is more, following the U.S. Federal Reserve’s last meeting a week ago, the probability of a rate hike this year has fallen at times to below 50%, according to the Fed fund futures. Apparently the market does not yet believe that the Fed will raise interest rates in December, as it had virtually announced.”
Analysts at Barclays look for the commodity sector to avoid the recent pattern of price tumbles in the fourth quarter and instead “perform robustly” into year end, with oil in particular poised to rise. The bank looks for oil supply to adjust lower and also for “lack of dollar strength” to bode well for commodities. The main threat in the commodity sector could be stronger-than-expected supply, especially for oil. However, any further announcements of fiscal expansion could help fuel a broad-based recovery in 2017, especially if they target key commodity-demand sectors such as infrastructure. “Overall, we think the outlook across commodities is more positive than it has been for some time,” Barclays says.
UBS Strategist Joni Teves said in a note that the expectation that low inflation should keep yields down and Fed policy easy, means gold prices will move higher. "Our expectation of much lower long-end real yields supports our positive gold outlook, and an environment of 'low for longer' would be a conducive backdrop for gold's next leg higher," Teves said, forecasting an average gold price of $1,400 in 2017.
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