What’s next? – GOLD, OIL 30.10.17

GOLD

Gold futures were up in early trading hours on Monday as the dollar reversed previous gains and investors looked ahead further economic reports later in the day.

On the Comex division of the New York Mercantile Exchange, gold futures were up 0.06 percent to $1.272.50 a troy ounce as of 05:05 GMT.

The yellow metal settled higher on Friday, boosted by rising concerns over Catalonia’s unilateral declaration of independence and its effects for the country’s economy.

The regional parliament declared on Friday its independence from Spain. The move left no other option to the central government than to dissolve the Catalan parliament and call early elections.

Prime Minister of Spain Mariano Rajoy promised to fired Catalonia’s President Carles Puigdemont, who has played a key role in promoting the region’s independence.

Immediately after the independence was announced in the region, the Spanish Senate gave a green light to Rajoy’s administration to apply Article 155, which allows the central government to take control over Catalonia. New elections are expected on December 21.

Gold is a safe-haven assets and it performs well in periods of high uncertainty and market stress. Futures for December delivery were up 0.51 percent at $1,276.06 by Friday’s close. However, the precious metal ended with a 0.68 percent loss for the week.

But bullion gains were capped by a continuous strengthening of the US dollar, which traded near three-month highs against a basket of six major rivals.

By the time of this writing the US dollar index was 0.15 percent lower at 94.68.

The American currency came under pressure following reports pointing at Fed Governor Jerome Powell as the prefered candidate to replace current Fed Chairwoman Janet Yellen.

Powell is considered to be a less hawkish economist than other candidates in the race, like Stanford University economist John Taylor.

Gold is very sensitive to changes in US interest rates. A higher interest rate environment makes the metal less attractive for market participants as they turn into assets with higher yields.

The dollar was previously supported by a better-than-expected economic expansion in the third quarter. The Commerce Department said the US economy grew 3 percent year over year against a forecasted rate of 2.5 percent.

Ahead in the day, traders will be looking ahead to fresh economic reports, including German retail sales for September at 07:00 GMT and its consumer price index at 13:00 GMT.

In the United States, attention will be directed to the core PCE price index for September, which is scheduled for release at 12:30 GMT. Personal spending will be available at the same time.

OIL

Oil prices were slightly down in early trading hours on Monday as market participants prepared for fresh inventory data later in the week.

The US West Texas Intermediate crude contracts were down 0.02 percent to $53.89 per barrel as of 06:15 GMT. Brent futures were down 0.08 percent, to $60.39 a barrel.

Oil futures settled in green territory on Friday, with the American benchmark touching its highest level in eight months and the international contracts ending above $60 per barrel.

This uptick could be interpreted as an speculatory movement over the potential extension of OPEC and non OPEC output cuts beyond its March 2018 deadline.

The Organization of the Petroleum Exporting Countries (OPEC) and a group of independent producers led by Russia will gather on November 30 in Vienna to discuss the matter.

Last week, Saudi Arabia pledged to “do whatever it takes” to rebalance the oil market, ending once for all the supply glut that has been pressuring benchmarks in the last three years.

Also contributing to the upside trend, Saudi Arabia's Crown Prince Mohammad bin Salman said he was in favor of extending deal for nine months.

The original agreement, which applies for nearly all OPEC members and 10 external producers, sets production cuts at a target 1.8 million barrels a day (bpd). The deal was extended in May 2017 but no alterations were made to cuts volumes.

WTI contracts were up by 4.7 percent on weekly basis, while the Brent added 1.9 percent. Last week was the third consecutive week of increases.

On Friday, market players paid close attention to the weekly oil rigs count from Baker Hughes. The oilfield services provider said rigs in the US rose by 1 to 737 units.

Ahead this week, investors will be pending on crude and refined products stockpiles from the American Petroleum Institute on Tuesday, official data on Wednesday and Baker Hughes weekly oil rig count on Friday.

Fort Financial Services