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Spot Gold Trades Near Five-Month Low

December 12th, 2017 by

Spot gold opened flat on Tuesday morning at $1,240/oz, weighed down by the nearly unanimous expectation that the Federal Reserve will raise rates at the conclusion of tomorrow’s FOMC meeting. The anticipation of higher interest rates knocked gold to nearly a five-month low.

Meanwhile, silver prices moved modestly lower to $15.64/oz. Platinum also slipped 0.9% to $878/oz while palladium was down about $6 per ounce (-0.6%) to $993/oz.

fed eccles building

Federal Reserve headquarters, Eccles Building, Washington D.C. (photo: Federal Reserve)

According to a survey of economists by CME Group, the markets are pricing in a better than 90% chance of a rate hike on Wednesday.

Aside from the markets focusing on the Federal Reserve, the markets also were responding to a jump in producer prices last month. The producer price index (PPI), which is used as a measure of wholesale price inflation, rose by 0.4% during November. This not only marked the third straight month of gains but also pushed U.S. PPI to a six-year high. Year-on-year, the increase in prices is over 3%.

Energy prices surged on Tuesday morning after a pair of disruptive events across the Atlantic. There was an explosion at a natural gas facility in Austria that has left at least 18 people injured and will undoubtedly limit European supplies of natural gas. This followed a leak discovered in a crude pipeline in Scotland that will cause its temporary shutdown while the crack in the pipes in repaired. This helped push Brent crude above $65 per barrel, a two-and-½-year high. WTI crude also traded sharply higher at $58.35/bbl.

The U.S. dollar was steady this morning, trading at 94.0 on the DXY index. Treasurys fell as the 10-year yield rose to nearly 2.40%. The pound sterling recovered back to $1.334 after inflation in the U.K. registered at its highest in nearly six years. The euro sank to a three-week low below $1.175.

Shares in Asia were lower overnight while European stocks rallied in early trading. The FTSE 100 in London advanced to a one-month high. Futures on Wall Street were mixed in quiet trading. However, the S&P 500 is expected to hit a new record-high during today’s session.

Although stocks have cooled off somewhat to begin December, two factors are likely playing in the favor of the equity markets: the seasonal year-end “Santa Claus rally” looms once attention moves past tomorrow interest-rate decision, and Congress continues to debate on the final version of its tax bill. In response to the expected tax cuts, a gauge of sentiment among small businesses has jumped to its highest in nearly 25 years. Confidence among small businesses in the U.S. hasn’t been this optimistic since President Reagan’s first term in office.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.