1 December, 2016

We have been saying for some time now that getting a reasonable handle on where gold is going to go ahead of Wednesday’s critical OPEC summit was difficult to do and the subsequent action in both markets on Wednesday proved our point. In this regard, oil prices surged by as much as $4.50 at one point on account of a higher-than-expected production cut agreed to by OPEC. But far from pulling gold up with it in what should have been a “higher inflation trade”, gold lost ground instead, falling to a 10-month low. We suspect that the surge in oil led investors to believe that higher inflationary expectations was more likely to lead to higher interest rates and that this was more of a real negative threat to gold as opposed to higher prices which may or may not set in. Not helping gold either, was the fact that the dollar soared on constructive US macro numbers, particularly against the yen; the Japanese currency faded by two full yen to finish at just above 114, an 8 1/2 month low. Although the Euro and sterling held steady, the general dollar index also advanced by almost half a percent, a rather sizable move.