Gold Investors Watching the Swiss, the Oil Market and the Interest Rate Trends

The U.S. Comex gold futures traded 1.25% lower during Asia Friday morning at around $1,182, a reaction to the OPEC’s non-action on 27 November. The crude oil futures plunged 6.62% to trade below $69 on Friday while the Brent oil futures plunged 6.65% to end at $72.58 on Thursday. The Dollar Index surged past 88 in Asia on Friday, rising 0.61% in the morning. The S&P 500 Index and the Euro Stoxx 50 Index have risen 0.49% and one percent respectively this week. The U.S. ten-year bond yield traded at 2.213% in Asia on Friday while the ten-year German Bund yield fell to 0.699% on Thursday.

Interplay of Oil, Lower Growth, Inflation, and Gold

Many countries outside of the U.S. are engaging in monetary easing and seeing their currencies dropping as growth slows and the oil price plunges. The November inflation rate in Germany dropped to 0.5% year-on-year from 0.7% last month while the latest inflation rate of Spain fell 0.5% as the Euro zone is experiencing deflation. The ECB pledges to use all types of instruments to stem deflation. On 27 November, the OPEC decided to maintain their oil production at 30 million barrels per day, influenced by Saudi Arabia’s decision, causing the oil futures to drop over six percent and weakening the coffers of Saudi’s rivals, Iran and Russia. China did not conduct any repo sales on 27 November, refraining from draining more funds from the banking system. The seven-day China interbank repo rate fell from 3.6553% last Friday to currently 3.3899%. India may also cut its historically high interest rates as inflation slows due to the lower oil prices while GDP also slows. Gold prices, which traditionally have a low correlation to oil prices, fall with oil as inflation expectations are lowered when oil prices sink.

What to Watch

We will watch the Swiss Gold Referendum on 30 November for the short-term cues for gold prices. We will monitor the November flash manufacturing PMI from China, the Eurozone, and the U.S. on 1 December, the India central bank interest rate decision on 2 December, the U.S. Beige Book release on 3 December, the ECB and the Bank of England monetary policy decisions on 4 December as well as the U.S. November non-farm payrolls and the unemployment rate on 5 December.