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Commodities: Stronger dollar continues to fuel gold sell-off

17-10-2017 18:05

The US greenback has continued to strengthen since late last week and has continued to pressure gold prices lower on Tuesday.
The dollar index was 0.32% firmer to 93.606 by 1750 BST, supported by reports U.S. President Donald Trump was leaning towards picking a hawk as the next head of the Federal Reserve.

As a result, spot gold was 0.71% lower to $1,286/Oz, while the December contract was down 1.17% to $1,288/Oz.

"It's partly (the possibility of a Hawkish Fed chair) and that the Fed is going to and needs to hike rates this year that is contributing to a bullish dollar environment," Martin Arnold, commodities analyst at ETF Securities, said.

Trump will meet with Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with the planned meeting said.

In other precious metals, silver traded 1.11% lower to $17.04/Oz, platinum was 0.31% firmer to $934/Oz. and palladium rallied 1.09% to $987/Oz after hitting its highest since February 2001 in the previous session.

"While fundamentals in palladium are good, they are not supportive of the kind of gains we have seen this year," Arnold said.

The base metals market saw copper slip away from 3 year highs on Tuesday as a stronger dollar encouraged profit-taking, but renewed optimism over China's economic outlook supported prices.

The spot contract was 1.18% softer on the day to $7,047/tonne.

In a report to clients, Standard Chartered said that the metals prices could find more support if China's National Party Congress this week unveils polices that extend the country's industry reform to protect the environment.

"Any signalling by policy makers that the rigorous application of environmental regulations on industry and seasonal pollution-reducing policies will be the norm over the next five years will be a price-positive development for the complex." they said.

Oil prices saw heavy selling late in the Tuesday session with West Texas Intermediate (WTI) for January delivery down 0.75% to $51.96/barrel and benchmark brent crude 0.67% lower to $57.21/barrel, after facing tough resistance at the $58 area.

After months of rangebound trading, during which OPEC-led supply cuts supported crude but rising U.S. output capped markets, prices have made significant gains this month.

Geopolitical tensions surrounding Iraq and Kurdish forces still simmer on the surface threatening supplies, while tension rose between the US and Iran, increasing global risk premiums.

"The latest bout of geopolitical premium to strike the energy complex remains alive and well as oil prices build on recent gains," said Stephen Brennock, analyst at London brokerage PVM Oil Associates.

During the previous round of sanctions against Iran, about 1 million barrels per day (bpd) of oil was cut from global markets.

Bank of America Merrill Lynch said it was raising its oil price forecasts.

"We see Brent averaging $54 this quarter and $52.50 per barrel in 1H18, compared with our previous forecasts of $50 and $49.50 per barrel respectively," it said.

Agriculturals saw soybean futures ease on Tuesday, falling further away from the $10/bushel level reached last week on an improving outlook for Brazilian planting and a generally favourable picture for U.S. crops.

Soybeans were 0.6% lower to $9.86/bushel while corn also fell, down 0.26% to $3.50/bushel. New York cotton for December delivery was 0.77% firmer at $0.6832/lb.

"Soybeans are seeing a continued pullback in selling from the $10 a bushel level we reached after the USDA cut its forecast of U.S. crop yields last week," said Matt Ammermann, commodity risk manager at INTL FCStone. "The $10 level is important psychologically and I think there needs to be a considerable level of fear in the market about crops to sustain it."