Commodity wrap: Fed rate cut doubts drag bullion to 1-week low; oil stumbles

Gold prices slipped to a one-week low on Tuesday as traders scaled back on their expectations of interest rate cuts by the US Federal Reserve.

Silver prices were also lower, tracking losses in the yellow metal. The metal also fell below $50 per ounce on COMEX to a one-week low.

Meanwhile, oil prices, after having spent most of the day in the green, declined as traders focused on the oversupply in the market next year.

The three-month copper contract on the London Metal Exchange was at $10,711.35 per ton, down 0.6% from the previous close.

Most other base metal prices were in bear territory on Tuesday due to reduced bets on Fed rate cuts for December.

Lower interest rates benefit commodities such as gold, base metals, and oil, as these are unyielding assets unlike bonds.

Gold slips

Gold prices hit their lowest point in over a week on Tuesday.

This decline was driven by reduced expectations of a Federal Reserve interest rate cut next month, which dampened demand.

The market movement occurred ahead of this week’s scheduled but delayed releases of US economic data.

The weaker trend in Asian Pacific trade continued overnight, with gold temporarily falling below $4,000 for the first time in nine days.

However, buyers quickly intervened, leading to a bounce back in prices. This rally follows gold’s recent near-touch of $4,250 last Thursday.

“Just over a week ago, the daily MACD curled up off the neutral line, suggesting that upside momentum was picking up,” said David Morrison, senior market analyst at Trade Nation.

But it has now flattened out and has started to point lower, suggesting that the selloff from October’s all-time highs may not have completed.

At the time of writing, the COMEX gold contract was at $4,055.61 per ounce, down 0.5%, while silver was 1.1% lower at $50.160 per ounce.

According to Fed Funds Futures, a 25-basis-point interest rate cut by the Fed is not fully anticipated.

The probability for such a cut at the upcoming December Fed meeting is currently less than 50%, and it is not fully priced in even for the subsequent meeting at the end of January.

“This is probably due to uncertainty, as it is unlikely that all the missing data will be available by the meeting in three weeks’ time,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report. 

Oil declines

Oil prices declined on Tuesday as an impending oversupply in the market spooked traders.

Goldman Sachs announced on Monday that oil prices are anticipated to fall until 2026. This projection is based on a persistent market surplus driven by an expected surge in supply.

However, analysts from Commerzbank present a different view on the expected oversupply.

The oil market’s current oversupply, noted at the beginning of the year by the US Energy Information Administration (EIA) and the International Energy Agency (IEA), has not yet become significantly noticeable.

“As we have pointed out several times, the decisive factor is that stockpiling has taken place primarily in China,” Barbara Lambrecht, commodity analyst at Commerzbank, said.

Despite oil stocks in OECD countries remaining below the five-year average, the amount of oil being transported via water is seeing a consistent rise.

The IEA’s monthly report indicated an increase of 80 million barrels in September, followed by a preliminary figure showing a further increase of 92 million barrels in October.

Sanctioned oil was responsible for slightly less than one-third of the increase observed in the last two months, based on the IEA’s data.

Lambrecht added:

When sanctions against the two largest Russian oil companies, which together account for half of Russian oil production and internationally traded oil, take effect on 21 November, the volume could rise even more sharply.

At the time of writing, the price of West Texas Intermediate crude was at $59.43 per barrel, down 0.7%, while Brent was 0.8% lower at $63.71 a barrel. 

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