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Gold has given up its October gains and analysts say that it will be difficult for the yellow metal to rally as oil prices fall into bear-market territory, according to some commodity analysts.
We’re only in the first week, but November is proving to be a disappointing month for gold as the yellow metal trades near a four-week low. December gold futures last traded at $1,208.60 an ounce, down 2% from the previous week. However, as disappointing as gold has been for some investors, the oil market has been devastating.
West Texas Intermediate crude oil has dropped nearly 22% in the last five weeks, falling from a four-year high in early October into a bear market. The oil market is seeing its longest losing streak in history.
Ole Hansen, head of commodity strategy at Saxo Bank said that he is not surprised gold has struggled as the drop in oil has created extreme pessimism throughout the commodity complex. He added that lower oil prices will impact commodity index funds, which in turn will influence gold prices.
Oil is arguably the leader of the raw commodity sector. As goes crude, so go the other commodity markets,” said Jim Wyckoff, senior technical analyst.
Although the gold market is not in great shape, Hansen said that he is not ready to be bearish on gold. He said that he is neutral on gold in the near-term.
“I can’t be outright bearish on gold because I don’t think the oil price weakness is sustainable,” he said. “I also think that equities also remain weak and that will support gold prices.”
Rising Interest Rates, Higher U.S. Dollar Also Weighing On Gold
Not only is gold getting hit from widespread negative sentiment in the commodity space, but it is also being dragged lower on expectations that the Federal Reserve will continue to raise interest rates, which is supporting the U.S. dollar near a one-year high.
Following Thursday’s monetary policy meeting, the Federal Reserve, while keeping interest unchanged in a range between 2.00% and 2.25%, reiterated its optimistic view on the economy, saying that activity has been rising at a strong rate.
“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.” the central bank said in its statement.