Gold and Oil Kept Afloat by Demand

Gold prices continued to consolidate below the strong resistance at 1271 and above the support at 1263. Gold prices were suppressed mainly due to a strong dollar which was a continuation of the sentiment from last week. The USD was strong against all instruments in general and this affected all the commodities as well and especially gold which continues to remain subdued. The price was kept under check further by the increasing expectations of a rate hike in the US in December. The market believes that the new US President would have settled in the job by then and once the Fed gets his support for the hike, the rate hike would immediately happen. We have also been seeing many of the bullish members of the Fed continue to make public statements that they are looking for a hike during December and this has placed a lid on the gold price so far. If the hike indeed comes along, then we should expect some more correction in the price of gold though the extent of the price correction is open to question as most of the rate hike expectation has already been priced into the markets and so, it would be a surprise only if they dont hike rates and it would not be a surprise if they did.

So, the gold price cannot get enough buyers in this kind of environment as investors expect the price to drop further before they jump into the buys but the price has not yet fallen greatly or as expected due to continuing demand from India and other parts of Asia where it is the festive season and a season to buy gold. We expect gold to continue to consolidate in this narrow region for today as well.

Oil has also been trading in a very small range as well as the price is well supported due to the oil production cuts from the OPEC producers and the production cuts have started to take effect in keeping the prices higher despite a stronger dollar. Under normal circumstances, we would have seen a larger correction in the oil prices due to the dollar strength but due to the production cuts supporting the oil prices, we see that oil is caught in a tight range. Once the dollar strength wanes, we could see oil making its next move and challenging the wall between $52 and $53 again. For today, we expect some more consolidation in this range.

When gold and oil are ranging, we cannot be expecting silver to make a big dance and thats what is happening as well as silver continues to consolidate and trade in range that is even tighter than that of gold and oil. As forecasted, there is no impetus for silver to move on either side and like gold, its being underpinned by the US rate hike expectations and we expect the consolidation to continue in the near future.