Crude Flat Ahead of OPEC Meeting, Gold Supported by Treasury Yield Curve Inversion

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished slightly lower on Wednesday ahead of the start of a strategic meeting of the world’s biggest exporters. Gold prices finished lower on Wednesday in limited trading. Without guidance from the Treasury market, the Forex trade was muted so consequently the U.S. Dollar was rangebound. Since gold is a dollar-denominated asset, it is largely impacted by the movement in the greenback.
James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

The New York Stock Exchange, NASDAQ Exchange and U.S. Treasury markets were closed Wednesday as the nation remembered the life of former President George H.W. Bush. Trading in the cash market will resume on Thursday. Futures traders picked up where they left off on Tuesday, by driving the major stock indexes sharply lower.

With the government basically shutdown for the day on Wednesday, a few key events were also postponed. The ADP jobs data, normally released on Wednesdays, and the Labor Department’s productivity report were postponed until Thursday. Additionally, Federal Reserve Chairman Jerome Powell’s testimony to the Joint Economic Committee of Congress was also rescheduled.

Despite Wednesday being a National Day of Mourning in honor of President Bush, the country’s 41st president, trading in energy and metals futures were open for their normal hours Wednesday.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished slightly lower on Wednesday ahead of the start of a strategic meeting of the world’s biggest exporters. The purpose of this meeting is to come to a decision regarding cutting output to help stabilize prices and curb excess supply.

On Wednesday, January WTI crude oil settled at $52.89, down $0.36 or -0.68% and February Brent crude oil closed at $61.56, down $0.52 or -0.84%.

Looking ahead to the events of December 6 -7, OPEC, Russia and other major producers are scheduled to meet in Vienna to discuss a potential cut in production.

Before the meeting, a monitoring committee of OPEC and its allies, including Russia, agreed on the need to cut crude oil production in 2019. According to CNBC, two sources familiar with the discussions said that volumes and the baseline for cuts were debated. Traders are expecting the production cuts to come in at between 1.0 and 1.4 million barrels per day.

Gold

Gold prices finished lower on Wednesday in limited trading. Without guidance from the Treasury market, the Forex trade was muted so consequently the U.S. Dollar was rangebound. Since gold is a dollar-denominated asset, it is largely impacted by the movement in the greenback.

At 0123 GMT, February Comex Gold is trading $1245.50, up $2.90 or +0.23%.

The weaker dollar this week is providing the most help for higher gold prices. Gold is going to have a hard time rallying without U.S. Dollar weakness. However, the greenback could remain under pressure because the inversion in the Treasury market is an indication of future weakness in the economy. Furthermore, Fed officials have been suggesting the pace for future rate hikes may slow. This is potentially bullish for gold prices.

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