Gold Treads Water in Spite of the Equity Market Selloff

It’s been a slow start to the day for gold, with spot gold down 0.17% at $1,276.02. FOMC member commentary has managed to peg back any upside for gold, with U.S inflation figures for October also considered to have been good enough for the FED to make its move next month. This week, members Rosengren and Harker have both talked of the need for a hike next month, with voting member Harker also suggesting that there would need to be three further hikes next year.

The risk on sentiment through the Asian session this morning eased demand for the safe haven asset, though there were obviously no material declines with market focus being on Capitol Hill.

Gold Stuck in a Rut

There are multiple drivers for gold at the moment, some positive and some negative. The combined effects have left gold range bound for some time, though the day ahead may bring an end to the recent ranges. It’s all about U.S tax reforms. While gold has shown little interest in the recent negative sentiment towards reforms, the Dollar and the Equity markets have been more responsive. Gold may well play catch up later today, with the senate vote on the tax reform bill scheduled for this afternoon.

Today’s vote may not mean that it’s a done deal, but will at least take the bill one step closer and that’s likely to be a positive for risk and the Dollar, which will likely weigh on gold.

Elsewhere, concerns over the future of Theresa May and the Tory Party continued to linger and then there are rising concerns over the outlook for the Chinese economy, with recent data suggesting that the 4^th quarter may be on the softer side. Staying on the political front, we also have rising tensions in the Middle East and North Korea to also consider, either of which could flare up at any time.

Voting FOMC Members Brainard and Kaplan will be speaking later today, which could provide further guidance on whether the FED will make a move next month. A combined yes vote in the Senate and hawkish commentary from the two voting members could finally take the gold bulls out, though with geo-political risk still a concern, we won’t expect gold to fall to sub-$1,250 levels.

Oil prices steadied through the early part of the day, the recent declines over last week’s inventory and production numbers out of the U.S having done the damage this week. The IEA’s monthly report was also more bearish than OPEC’s on demand for crude, not to mention anticipated shale production. This does complicate matters for OPEC and Russia who have been delivering on their promise to rebalance crude. While an extension to the agreement is a positive, questions will continue to do their rounds on how much more production will OPEC and Russia be willing to cut and will it ever be enough to offset rising shale production. Until the volumes reach levels that are too sizeable for U.S producers to offset, any major upside in crude is likely to be limited. Added to this is the recent negative sentiment towards the Chinese economy. WTI and Brent were up 0.07% and by 0.23% at the time of writing.

Silver was having a slightly better time of it than gold in the early part of the day today, down just 0.04% at $16.97, having pulled back from $17 levels following the latest inflation figures out of the U.S. Direction for the day ahead will be hinged on how the tax reform bill progresses on Capitol Hill.