Gold price upside limited despite small recovery, oil stagnant

Otmane El Rhazi from The Bullion Desk.

The gold price recovered slightly on Tuesday morning following the slump of the previous session, although sentiment remains bleak while investors are pushed towards more yield-bearing assets and weak oil prices continue to weigh.

Spot gold was last at $1,181.60/1,182.40 per ounce, up $8.30 on Monday’s close after hitting a low of $1,170 in the previous session.

A pick-up in physical buying in China at the lower price levels appeared to offer some support, with premiums moving towards $5 over spot.

“While emerging market buying on dips is likely to moderate further potential price declines, ongoing oil market weakness is a significant weight on bullion and may very well cap rallies,” HSBC’s James Steel said.

Brent crude oil is stagnant at around $60 per barrel after a warning from the Saudi oil minister that OPEC will not cut production from 30 million barrels per day production even if oil falls to $20 a barrel and that the “world may never see $100 a barrel again”.

OPEC may fear that a cut in Gulf production would invite competitors such as Russia to compete for its market share.

“The ability and apparent willingness of OPEC, and more specifically Saudi Arabia and the Gulf States, to hold production in the face of plunging prices may also mean the upside for gold prices is limited,” Steel added. “The threat of even lower oil prices is a clear negative for gold.”

Still, the general theme has been one of investors seeking riskier assets while the dollar remains strong at 1.2230 against the euro, US bond yields are picking up and equity markets flourish.

“Positioning still seems to be light in gold so we expected the market to remain contained during the holiday period, but big swings in other markets such as USD and crude will exacerbate moves due to the light liquidity,” MKS’ Alex Thorndike said in a note.

In data, the Chinese CB leading index at 0.9 percent was slightly better than last month’s 0.8 percent. In the eurozone, French consumer spending was better than predicted at 0.4 percent, while Italian retail sales at 0.0 percent fell short of forecast.

Core durable goods orders, final GDP, new home sales, core PCE price index, personal spending, personal income, University of Michigan’s consumer sentiment report and the house price index are due from the US this afternoon.

In the other metals, silver at $15.70/15.75 per ounce was up 16 cents, platinum at $1,182.00/1,192.00 was $9 higher and palladium climbed $2 to $808/813.

(Editing by Mark Shaw)

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