Weak Equity Markets, Economic Uncertainty Drives Gold to Three-Month High

April Comex Gold futures are extending earlier gains during the U.S. trading session. The market is up about 2.4 percent at $1185.80 an ounce. The strong rally exceeded the October 28, 2015 top at $1184.00, putting gold in a position to challenge the October 15, 2015 main top at $1191.90.

The catalysts behind the selling pressure are a steep sell-off in the global equity markets and global growth uncertainty tied to the drop in crude oil prices.

Interest in the long side of the gold market is also increasing with U.S. hedge funds and money managers boosting their bullish bets in COMEX gold to a three-month high in the week to Feb. 2, according to U.S. Commodity Futures Trading Commission data released late Friday.

March Crude Oil prices were also under pressure on Monday, however, volume was below average. This may be attributed to the start of the Chinese Lunar New Year. The long-term fundamentals remain bearish and the short-term spark that underpinned futures at times last week is dissipating. Today’s price action shows that short-term investors are losing confidence in a possible meeting between OPEC and Non-OPEC countries to address production cuts, a move that would surely lead to fresh short-covering and higher prices.

Over the week-end, Saudi Arabia’s oil minister Ali al-Naimi discussed cooperation between members of the Organization of the Petroleum Exporting Countries and other oil producers to stabilize the global oil market with his Venezuelan counterpart. However, as of early Monday, there was no sign any agreement had been reached to hold an early meeting of suppliers.

In an effort to get back some of its market share it lost during the sanction period, Iran announced that France’s Total had agreed to buy 160,000 barrels per day of Iranian crude for delivery in Europe. There were also rumors that Italy’s Eni was interested in buying 100,000 bpd and Italian refiner Saras was interested in buying 60,000 – 70,000 bpd.

The Euro and British Pound initially showed strength on Monday as investors continued to express concerns about the timing of future interest rate hikes by the U.S. Federal Reserve. However, the U.S. Dollar was able to recover from early session weakness, pressuring the Euro and the Sterling.

The Euro also received support from safe haven buying amid early session weakness by the U.S. stock markets. The dollar also lost some ground early in the session as traders continued to abandon thoughts of multiple interest rate hikes by the U.S. Federal Reserve. This deflated most of the momentum created by Friday’s mixed U.S. Non-Farm Payrolls report, but by the time the U.S. session opened, the U.S. Dollar had recovered its losses.