Global Market Quick Take: Europe
Commitment of Traders: Specs rush back into metals; weak crude conviction
The direction of precious metals continues to be dictated by incoming US economic data, as they eventually will determine the direction the US Federal Reserve decides to go on rates. It was weaker than expected economic data that supported an end of August rally as it lifted expectations of peak rates followed by lower rates in 2024, and in the process forced traders to cover short positions which had been established in response to dollar and bond yield strength.
The softness in US economic data did not last, and during the past week both manufacturing and services PMI showed strength, with the headline and the prices paid component beating expectations, thereby once again raising odds of a quarter-point Fed rate increase in November to more than 50%, and with that another delay to the timing of a precious metal supportive peak rate scenario.
The sharp turnaround in rate expectations from a pause to the risk of another rate hike helped send bond yields higher while reducing the number of expected 25-bps rate cuts next year from five to four. The dollar, however, remains one of gold traders' biggest sources of directional inspiration and this past week the Bloomberg Dollar Index, which tracks a basket of 11 major currencies, reached a six-month high. The jump in crude oil prices following Saudi Arabia’s decision to extend its unilateral production cut until yearend, has probably helped prevent an even deeper setback for gold as it not only raises inflation but also growth concerns.