【Market Evening】Gold edges up, Dollar at 2021 highs, Oil falls

Gold edges up, faces pressure from U.S. rate hike bets

Gold prices edged higher on Wednesday as a slight dip in U.S. bond yields provided support against growing expectations of quicker-than-expected U.S. interest rate hikes that also pushed the dollar to a multi-month high.

Spot gold rose 0.47% to $1741.98 per ounce and spot silver fell 0.59% to $22.29 per ounce by 17:30(GMT+8).

“There is very little bullish case for gold right now,” OCBC Bank economist Howie Lee said.

“We see gold at around $1,500 by the end-2022, especially with tapering having completed its course by then and the Fed looking to start raising its interest rates.”

The dollar index hit the highest in nearly 11 months.

Though the benchmark U.S. 10-year Treasury yields eased slightly, it held above 1.5%, a level last seen in June.

Higher yields raise the opportunity costs of holding non-interest bearing bullion.

The St. Louis Federal Reserve President James Bullard on Tuesday said high inflation may require more aggressive steps by the central bank, including two interest rate hikes in 2022.

In congressional testimony, Fed Chair Jerome Powell said the U.S. economy is far from achieving maximum employment, one of the central bank’s requirements for raising interest rates.

Having broken through support at $1,740, gold could test $1,700 this week if tapering repricing continues, Jeffrey Halley, a senior market analyst for Asia-Pacific at OANDA said in a note, adding some risk-hedging was supporting bullion on the day.

Indicative of sentiment, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, slipped to 990.03 tonnes on Tuesday from the day before.

Dollar at 2021 highs as traders brace for Fed taper

The dollar stood at its strongest levels of the year on Wednesday, after rising along with U.S. yields on investor concerns that the Federal Reserve will start to withdraw policy support just as global growth slows.

The dollar rose broadly overnight to lift the dollar index to an 11-month high of 93.805. It was marginally below that level early in the Asia session at 92.728.

U.S. Treasury yields have surged — with benchmark 10-year rates up 25 basis points in five sessions to 1.5548% — as Fed tapering looms before the year’s end and as inflation starts to look stickier than first thought.

The Japanese yen, which is sensitive to U.S. yields as higher rates can draw flows from Japan, has fallen about 2% in five sessions and at 111.57 per dollar is not far from hitting its lowest level since February 2020.

The euro fell to a one-month low overnight and, last buying $1.1684, is also testing major support levels around its 2021 low of $1.1664 and its November 2020 low of $1.1602.

Along with the Fed’s hawkish toneSterling copped a particular beating overnight as concern over the economic impact of a shortage of gas and a scramble for fuel pulled it 1.2% lower on the stronger dollar, its largest daily fall in more than a year.

The Australian and New Zealand dollars also suffered and the kiwi hit a one-month low. Central bank meetings loom next week in both countries and swaps pricing points to the Reserve Bank of New Zealand following Norges Bank and lifting rates.

“NZD/USD remains stuck around $0.7000, as the effect of the hawkish RBNZ is offset by increasing expectations of the Fed,” said Westpac analyst Imre Speizer.

The kiwi was last at $0.6947 and the Aussie at $0.7248.

Oil falls for second day as supply-driven rally peters out

Oil prices fell for the second straight day on Wednesday as doubts re-emerged over demand, with Covid-19 cases continuing to rise worldwide and gasoline shortages in some regions.

Brent crude oil price rose 0.37% to $77.66 a barrel while U.S. West Texas Intermediate crude oil price was at $74.52 a barrel, up 0.45% by 17:30(GMT+8).

Oil prices have been charging higher as economies recover from pandemic lockdowns and fuel demand picks up, while some producing countries have seen supply disruptions.

Traders expect Organization of the Petroleum Exporting Countries (OPEC) and allies, usually known as OPEC+, will decide to keep supplies tight when they meet next week.

“While the supply backdrop has not changed much, oil prices hitting USD80/bbl would see pressure building for OPEC+ nations to increase their production quota,” ANZ Research said in a note.

Oil demand is expected to rise strongly in the next few years, OPEC forecast on Tuesday, sounding a warning that the world needs to keep investing in production to avert a crunch even as it transitions to less polluting forms of energy.

China’s weakening housing market and growing power outages have hit sentiment as any fallout for the world’s second-biggest economy would likely have a knock-on effect on oil demand, analysts said.

China is the world’s top oil importer and second-biggest consumer of the fossil fuel after the United States.

Asian markets track sharp losses on Wall Street

Asian shares fell sharply on Wednesday after a broad slide on Wall Street as investors reacted to a surge in U.S. government bond yields.

Nikkei 225 fell2.12% to 29,544.29.

Hang Seng Index rose 0.67% to 24,663.50.

Taiwan capitalization weighted stock fell 1.90%) to 16,855.46.

S&P/ASX 200 fell 1.08% to 7,196.70.

South Korea KOSPI fell 1.22% to 3,060.27.

COVID-19 remains a lingering threat and is still taking its toll on businesses and consumers. Economic data on consumer spending and the employment market has been mixed. U.S. consumer confidence declined for the third straight month in September, according to a report from The Conference Board.

Companies are warning that supply chain problems and higher prices could crimp sales and profits. The Federal Reserve has maintained that rising inflation is temporary and tied to those supply chain disruptions as the economy recovers from the pandemic.

Focus Tonight

22:45(GMT+8): Fed Chair Powell Speech;