Gold Futures Break to Four-Week Low in Reaction to Higher U.S. Treasury Yields

December Comex Gold futures continued to break for a fifth straight session, dropping more than one-percent while driving the futures contract to a four-week low. The catalyst behind the rally was speculation of an early interest rate hike by the U.S. Federal Reserve. The move underpinned the U.S. Dollar. The dollar-denominated gold market became less attractive to foreign investors, lowering demand for the precious metal. Additionally, investors were moving money into higher-yielding assets since gold doesn’t pay a dividend or interest.

December Crude Oil prices soared more than two-percent on Tuesday, bolstered by rallies in U.S. gasoline and diesel fuel. The catalysts behind the rally were an industry strike in Brazil and a force majeure for Libyan crude loadings.

Although the longer-term situation is bearish because of the supply glut, short-term oversold conditions caused today’s spike in prices as investors reacted to the bullish news.

Rising gasoline prices are primarily behind the rally. The move in gasoline helped drive the crack-spread to a one-month high. Besides the two international events in Brazil and Libya, short-covering ahead of Wednesday’s U.S. Energy Information Administration’s weekly inventories report also helped underpin crude oil. The report is expected to report lower inventories for refined oil products, while crude oil stocks are expected to show a 2.7 million-barrel build.

The strike in Brazil at Petrobras may have slowed output by as much as 25 percent, leading to a drop in output by as much as a half a million barrels.  In Libya, the export terminal at the eastern port of Zueitina was closed, disrupting supply.

The events aren’t enough to change the trend in crude oil or gasoline, but were enough to shake out some of the weaker short-sellers, according to traders.

The U.S. Dollar dumped to near a 3-month high on Tuesday in response to higher U.S. Treasury yields as investors appeared to be continuing to adjust to the possibility of a Fed rate hike in December. The move by the Greenback pressured the Euro and the British Pound.

December Treasury Note yields jumped to their highest levels in more than six weeks as investors increased bets that Friday’s U.S. Non-Farm Payrolls report would be strong enough for the Fed to increase rates in December. Traders believe the economy added 179K new jobs in October.

Today, the U.S. Commerce Department reported manufacturing orders fell 1.0 percent in September, slightly below economists’ estimates, but this didn’t seem to deter the buying in the dollar as traders continued to put more emphasis on Friday’s jobs report.

The GBP/USD weakened as investors adjusted positions ahead of Thursday’s Bank of England meeting and Quarterly Inflation report. Also traders who bought last week on speculation the BoE would raise rates before the Fed, continued to soften their long positions.