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Gold Retreats as Risk Aversion Falls

Support for US Dollar Ahead of FOMC Meeting

gold-and-usd

Gold prices, which managed to rally earlier this week, gave back most of their gains in yesterday’s trading session on falling risk aversion while the US Dollar strengthened, supported by stable inflation numbers and despite the setbacks from industrial production which continue to contract.

US Consumer Inflation Stable in October

The US Consumer price index in the month of October was stable, rebounding 0.20% and matching estimates. The data showed that despite the modest uptick, inflationary pressures were practically non-existent. However, the October inflation data manages to keep the Fed's rate hike plans unchanged. Some economists expect to see an increase in headline CPI over the next few months as evidenced by current inflationary trends, where most gains come from higher energy prices that are likely to remain. There was little reaction to the news but the dollar strengthened in the short term across the board before easing back after industrial production data continued to contract. For the month of September, US industrial production declined -0.20%, posting a third straight month of declines after briefly rising to 0.60% in July. USDJPY tested the highs of 123.488 yesterday with further upside likely to be followed.

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New Zealand Global Dairy Trade Declines -7.90%

The Global Dairy Trade index data released yesterday showed a worse than expected decline of -7.90%, posting a third consecutive decline from the previous -7.40%. The NZDUSD did not react much, declining only a few pips before stabilizing. The RBNZ had cited the continued declines in global dairy as one of the concerns which could lead to further rate cuts. The Bank held rates steady at its meeting on October 28th, but highlighted the risks in the financial stability report. Weak unemployment numbers and subdued retail sales data were other releases which continue to weigh in favor of further rate cuts. The next meeting between RBNZ bankers is on December 9th. Expectations are mixed as the Reserve Bank meets nearly a week after the US Federal Reserve monetary policy meeting where US interest rates are expected to rise. A stronger US Dollar led by rate hikes could see the Kiwi decline further, amidst uncertainty regarding the RBNZ’s ability to follow through.

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Commodities Erase Gains

Commodity prices were under pressure yet again with gold declining -1.15% in yesterday’s session. Gold futures closed at 1069.94 yesterday erasing any gains made earlier in the week as risk aversion faded and the US Dollar was back in force. Crude Oil futures were also weak yesterday losing -2.24% and seeing prices settled at 41.09 after a brief test to support at 40.53. Weekly US crude oil inventories numbers are due out later this evening. WTI Crude oil prices took a sharp downturn since last week as the weekly US inventory report had shown that the commercial oil stockpiles nearly doubled estimates, sending prices down sharply. There was some respite for WTI futures earlier in the week due to the conflict in Syria, but they quickly gave way, erasing whatever gains were made. Crude oil futures are trading close to multi-decade lows with a decline down to 37.73 being a thorough possibility in upcoming sessions should the trends prevail.

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Markets Focus on FOMC Minutes

Minutes from October’s FOMC meeting will be released today at 19:00 UK time. The Federal Reserve surprised the markets with a strongly hawkish narrative noting that December was still a 'live' meeting where the Fed could decide on whether to hike rates or not. Since October, various Fed members have shown strong consensus in favour of rate hikes, albeit with a few exceptions. Today's meeting minutes will likely reveal what the few remaining concerns are for the Fed before the December showdown. Unemployment rate has dropped to 5.0% and it is highly unlikely that the next jobs report will have much of an impact even if data surprises to the downside. Inflation, global risks arising out of the Fed rate hike plans, and US Dollar strength are likely to be the main themes to watch.

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