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Thursday, 30 March 2017
Gold extends retreat from 1-month highs as dollar gains ground
Gold prices edged lower for a third straight session on Thursday, adding to their decline from a one-month high reached at the start of the week as the dollar strengthened amid expectations for more U.S. interest rate hikes this year.
Comex gold futures dipped $3.20, or around 0.3%, to $1,250.50 a troy ounce by 3:00AM ET (07:00GMT). Meanwhile, spot gold was down $2.50 at $1,251.10.
Gold hit its strongest since February 27 at $1,264.20 on Monday.
Also on the Comex, silver futures for May delivery shed 6.4 cents, or about 0.4%, to $18.18 a troy ounce. In the previous session, the metal touched its highest since March 2 at $18.27.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 99.86 in London morning trade.
It rose to an overnight high of 99.99, extending a bounce off a four-and-a-half month low of 98.67 touched on Monday.
The greenback was boosted by hawkish comments from a number of Federal Reserve officials on Wednesday, including Chicago Fed President Charles Evans and San Francisco Fed President John Williams.
There are three more Fed speakers on the calendar for Thursday. New York Fed chief William Dudley is expected to be the most important, with a 4:30PM ET discussion on financial conditions and monetary policy.
San Francisco Fed President Williams speaks at 11AM ET, while Dallas Fed President Robert Kaplan speaks at 3PM in New York.
On the data front, investors will have initial jobless claims and the final look at fourth quarter GDP, both released at 8:30AM ET.
The Fed raised interest rates earlier this month and stuck to its outlook for two more hikes this year.
Fed fund futures priced in around a 50% chance of a rate hike in June, according to Investing.com’s Fed Rate Monitor Tool. Odds of a September increase was seen at about 70%.
The precious metal is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
Headlines from Washington will also be in focus, as traders await further details on President Donald Trump's promises of tax reform following the House's failure to vote on a plan to replace Obamacare last week.
Elsewhere in metals trading, platinum tacked on 0.4% to $959.70, while palladium declined 0.3% to $787.62 an ounce.
May copper futures dropped 1.4 cents, or 0.5%, to $2.662 a pound.
Oil up on Libya disruptions, but bloated U.S. market still weighs
Oil prices rose on Thursday, extending two days of increases as supply disruptions in Libya lifted the market, although bloated U.S. crude inventories curbed gains.
Prices for front-month Brent crude futures (LCOc1), the international benchmark for oil, were at $52.53 per barrel at 0659 GMT, up 11 cents from their last close.
In the United States, West Texas Intermediate (WTI) crude futures (CLc1) rose 17 cents to $49.67 a barrel.
The increases extended two days of gains which supported Brent well above $50 a barrel and lifted WTI within sight of that level.
Traders said supply disruptions in Libya were lifting the market and that falling U.S. gasoline inventories pointed to a tightening market there despite record crude stocks.
"While crude stocks did build, the build was significantly lower than expected. Product stocks, on the other hand, drew a lot more than expected. This information, combined with the supply disruption in Libya was good enough to give the market cause to buy eagerly," said Sukrit Vijayakar, director of energy consultancy Trifecta.
U.S. gasoline stocks fell 3.7 million barrels in the week ending March 24, compared with expectations for a 1.9-million barrel drop, the Energy Information Administration (EIA) said on Wednesday.
U.S. crude inventories , however, rose 867,000 barrels to a record of nearly 534 million barrels.
Key for the direction of oil prices will be whether an initiative led by the Organization of the Petroleum Exporting Countries (OPEC) to cut oil production during the first half of the year will be extended, and how high compliance with the reduction targets will be.
OPEC, along with other producers including Russia, aims to cut output by almost 1.8 million bpd during the first half of the year.
OPEC compliance with its targets is expected to be 95 percent this month, up from 94 percent in February, according to Reuters surveys.
"This is extremely good for the cartel as it has helped them get a 10-15 percent increase in prices for 3 months now," Vijayakar said.
However seems lower by non-OPEC members like Russia, who have officially agreed to participate in cutting.
"Russia's 300,000 bpd cut commitment particularly has been called into question," Eurasia Group said this week in a research report.
"It is highly unlikely Russia will achieve an absolute 300,000 bpd reduction during the tenure of the current agreement," it added.
As markets remain bloated halfway into the curbs, there is a broad expectation that the supply cuts will be extended into the second half of the year.
Gold lower in Asia but support from India, China eyed
Gold prices edged lower in Asia on Thursday with demand prospects in the world's top two importers, China and India, in focus with physical and exchange traded fund demand on hopes tax reform by New Delhi could cut the cost of bullion imports and as Chinese buyers seek a hedge for a weaker currency.
Gold for April delivery on the Comex division of the New York Mercantile Exchange eased 0.14% to $1,251.90 a troy ounce. Copper futures on the Comex were last quoted at $2.676 a pound.
Overnight, gold prices traded modestly lower on Wednesday, weighed by a rise in the dollar, which continued to recover from multi-month lows, after the release of upbeat economic data.
Gold prices dipped to a session low of $1,246.50, as stronger than expected U.S. home sales data supported the narrative of a stronger U.S. economy, which pushed the dollar to session highs. The U.S. National Association of Realtors said its pending home sales increased by 5.5% last month, which was far above economists’ forecast of a 2.4% increase.
Meanwhile, British Prime Minister Theresa May triggered Article 50 on Wednesday, the legal process by which Britain will leave the EU. Article 50 gives the leaving country two years to negotiate an exit deal and once it's triggered, it can't be stopped except by unanimous consent of all member states.
Elsewhere, investors mulled over comments from Federal Reserve officials, as Fed member Charles Evans said Wednesday, he has confidence that two total rate increases in 2017 seems “very safe”.
Federal Reserve Bank of Boston President Eric Rosengren took a somewhat bullish outlook on possible rate hikes, after he said the U.S. central bank should be prepared to raise interest rates a total of four times in 2017 to prevent the U.S. economy from overheating.
Gold is sensitive to moves in U.S. interest rates, which lift the opportunity cost of holding non-yielding assets such as gold, while boosting the dollar in which it is priced.
Oil edges up on Libya disruptions, but bloated U.S. market still weighs
Oil prices edged up on Thursday, extending two days of increases as supply disruptions in Libya lifted the market, although bloated U.S. crude inventories curbed gains.
Prices for front-month Brent crude futures (LCOc1), the international benchmark for oil, were at $52.53 per barrel at 0445 GMT, up 11 cents from their last close.
In the United States, West Texas Intermediate (WTI) crude futures (CLc1) rose 19 cents to $49.70 a barrel.
The increases extended two days of gains which supported Brent well above $50 a barrel and lifted WTI within sight of that level.
Traders said supply disruptions in Libya were lifting the market and that falling U.S. gasoline inventories pointed to a tightening market there despite record crude stocks.
"Production issues ... deepened, with Libyan oil output falling to about 500,000 barrels per day due to the shutdown of pipelines from its biggest field," ANZ bank said on Thursday.
And while a rise in U.S. crude inventories weighed, ANZ said that "big falls in gasoline inventories, coming near the end of the refinery maintenance season, suggest crude oil inventories are on the cusp of declining".
U.S. gasoline stocks fell 3.7 million barrels in the week ending March 24, compared with expectations for a 1.9-million barrel drop, the Energy Information Administration (EIA) said on Wednesday.
U.S. crude inventories , however, rose 867,000 barrels to a record of nearly 534 million barrels.
Key for the direction of oil prices will be whether an initiative led by the Organization of the Petroleum Exporting Countries (OPEC) to cut oil production during the first half of the year will be extended, and how high compliance with the reduction targets will be.
OPEC, along with other producers including Russia, aims to cut output by almost 1.8 million bpd during the first half of the year.
OPEC compliance with its targets is expected to be 95 percent this month, up from 94 percent in February, according to Reuters surveys.
However, compliance could be lower by non-OPEC members like Russia, who have officially agreed to participate in the cuts.
"Russia's 300,000 bpd cut commitment particularly has been called into question," Eurasia Group said this week in a research report.
"While it remains possible Russia can scrape together a combination of outages and natural decline at some west Siberian brownfields and spin this as a 300,000-bpd output cut, it is highly unlikely Russia will achieve an absolute 300,000 bpd reduction during the tenure of the current agreement," it added.
As markets remain bloated halfway into the curbs, there is a broad expectation that the supply cuts will be extended into the second half of the year.
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