The US Federal Reserve cut interest rates this week, which led to a rise in gold prices on Friday.
Oil prices dropped into the bear zone as fears about the demand for oil outweighed the optimism generated by the US interest rate reduction.
Copper prices in other countries rose Friday, as investors waited for a US central bank to become more accommodating on the long term.
Gold is still flying
The gold price has risen by almost $400 since the beginning of August. It reached a high point midweek just above $3,700 an ounce.
Prices fell slightly following the Fed’s meeting.
Barbara Lambrecht said that a break was likely urgently required. She made this statement in a recent report by Commerzbank AG’s commodity analyst.
The momentum is over for the moment, even though China’s imports of gold from Hong Kong could indicate that Asian buyers are “getting used to” the new price levels.
Lambrecht expects gold prices to rise even more in the future, since Commerzbank anticipates more rate reductions by the Fed than does the market.
The December COMEX gold contract was trading at $3693.20 an ounce as of the writing. This is up by 0.4% from its previous closing price.
The COMEX silver price was 1.2% higher, at $42.643 an ounce.
Gold is a good example of an asset that has a low yield, but lower interest rates reduce the cost to hold it.
Since the start of this year, gold has appreciated by approximately 39%.
Neel Kahkari is the President of the Fed Bank of Minneapolis. He stated that the job market risk justified the rate reductions this week and those anticipated at the next two central bank meetings.
Oil prices slip
The US Fed’s first rate reduction of the year was not enough to offset the concerns about fuel demand, which led to the oil price dropping on Friday.
The stronger dollar also affected oil prices Friday. The greenback-priced commodities are more expensive to overseas buyers when the dollar is stronger.
Concerns over the demand for US crude oil are putting pressure on prices. This is due to a 4 million barrels increase that was larger than expected in US distillate stocks.
Recent economic data indicate a softening of the US job market, and that single-family housing construction in August reached a record low. This is attributed to a surplus of new homes not sold.
Lambrecht said that “however, the prices are still supported by ongoing discussions about sanctions extending to Russian energy exports”.
US President Donald Trump hinted at possible additional sanctions if NATO allies did not purchase Russian gas and oil, or secondary tariffs by the US were implemented.
Although the EU will unveil their 19th package of sanctions today, it is unlikely that an agreement can be reached on the matter in the near future.
The EU may signal an acceleration of the phase-out process of the remaining Russian energy imports. This was originally planned to be completed by the end 2027.
West Texas Intermediate crude was $63.32 an ounce at the time this article was written, a 0.4% decrease. Brent crude oil was 0.4% lower at $67.19 per barrel.
Copper rises
Copper prices increased despite a stronger US dollar. This was due to the possibility of a new Fed leader who is more dovish.
Citi predicts that copper will end 2025 with a modest increase, but then surge to $12,000. This is due to an expected recovery in manufacturing worldwide and the weakening of the US dollar.
According to analysts at the Bank of America in its latest quarterly commodity outlook, despite the fact that demand will be challenged in the next few months, the market is likely to improve in 2011 due to supply shortages.
Citi forecasts copper to average around $10,000 per ton during the fourth quarter. This is close to current prices.
The report stated that “for investors and consumers who can weather short-term volatility we recommend investing in copper for the next 3 to 6 months, to achieve a 20% gain” by 2026.
The three-month contract for copper on the London Metal Exchange is now $9,985 a ton. This represents a 0.4% increase.
The post Commodities Wrap: Oil Slips Due to Demand Concerns; Bullion and Copper Continue Ascent can be updated as new developments unfold.
