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Commodities: Gold breaks range to trade lower on improved US outlook

29-11-2017 18:31

Gold managed to break it's tight $7 range on Wednesday, on the back of positive US data, breaking support at $1,291.
Data out on the day showed US preliminary GDP was on expectation of 3.3% as well as improving pending home sales which beat forecasts of 1.1% to come in at 3.5%.

Add to this, signs of progress with US tax cuts and Europe's Brexit negotiations and a stronger dollar was seen as a result, with the greenback trading 0.02% higher to 93.251 against a basket of currencies.

Spot gold was 0.75% softer at $1,284/oz. while the February contract traded 0.91% lower to $1,287/oz.. Support for the spot contract now lies at $1,283.

Investors seemed to shrug off concerns over a missile test by North Korea that put the entire US mainland within range of its nuclear weapons.

"This drop in gold came when GDP surprised to the upside, the dollar started to rally and yields moved higher," Julius Baer analyst Carsten Menke said.

"The drop in physical demand has made gold very, very sensitive to the U.S. dollar and U.S. bond yields. There is basically nothing else that is driving the gold market this year." He added.

In other precious metals, silver was down 1.51% to $16.62/oz., platinum traded 0.53% softer at $945/oz. and palladium fell 1.58% to $1,016/oz..

Copper prices fell for a third day as concerns over demand from China pushed investors to sell.

The base metal has seen heavy selling from the $7,000 mark were investors seized the opportunity to take profit.

Trading 0.82% lower on the day, copper sits at $6,757/tonne hitting a day low of $6,742/tonne, an area that saw significant support in mid November.

Economic growth in China has shown signs of slowing and blue-chip stocks were sold off in the last week.

"There are worries over China's economy and rising (U.S.) interest rates, which are seen as a sign of tighter liquidity," said Commerzbank analyst Daniel Briesemann.

Virtual currency Bitcoin has gone from strength to strength, rallying 7.94% on Wednesday to $10,754, trading over $11,000 earlier in the day.

Coming to the attention of the US Fed, New York Federal Reserve President William Dudley said, "At this point it's really premature to be talking about the Federal Reserve offering digital currencies," adding, "But it is something we are starting to think about: what would it mean to have a digital currency, what would it mean to offer it, do we actually need it."

Research fellow at the University of Cambridge's Judge Business School, Garrick Hileman said, "What's happening right now has nothing to do with bitcoin's functionality as a currency - this is pure mania that's taken hold."

"This is very much a bubble that will very much correct itself at some point and people need to be very careful." He added.

Conflicting remarks from oil ministers a day ahead of OPEC's meeting in Vienna pushed oil prices lower on the day with US West Texas Intermediate (WTI) for January delivery down 1.73% to $56.98/barrel, while benchmark brent crude was 1.37% lower to $62.74/barrel.

On the data front, crude oil inventories were reduced by 3.4 million barrels, below expectations of a 2.5 million barrel reduction.

"The rise in refined product inventories more than offsets the crude oil inventory drop, and there was a notable, if not spectacular, drop in implied gasoline demand on the week," said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.

The Organisation of Petroleum Exporting Countries is due to meet on Thursday, widely expected to discuss an extension of the 1.8 million barrel a day production cut, with a review possibly sheduled for June.

Moscow fears a strong price rally off the back of such a move could give an unsustainable boost to the rouble, one that harms Russian exports.

In the agricultural market, soybean futures were relatively unchainged at $10.06/bushel, while December corn was 0.68% firmer at $3.38/bushel.

A cash dealer in the eastern US Midwest said that farmers had been delivering on contracts they booked earlier in the year, cutting demand for additional corn and soybeans.