Gold and oil continue to be as different as chalk and cheese – oil’s rebound continues but the confidence and momentum driving that rally is hurting gold and on Friday sent the futures price under $US1,800 an ounce for the first time in three months.
Oil stands to get another kick along with the OPEC plus group on the verge of delaying their cut to their production cap that was due to happen on January 1.
A decision on the cut of 2 million barrels a day could come tonight or tomorrow as OPEC plus (which includes Russia) meet to discuss the cap.
OPEC+ was planning to raise output by 2 million barrels per day (BPD) in January, but the price surge and the rapid growth in Libyan output (to more than 1.1 million barrels a day) are seen as convincing OPEC to keep the old cap in place for the first quarter of 2021.
Rising Libyan output is also contributing to concerns about oversupply in the market. The OPEC member, which is exempt from the oil cuts, has added more than 1.1 million BPD of output since early September and added to the existing oversupply.
Oil markets have on the whole ignored that, preferring to focus on the future with the COVID-19 vaccines expected to underpin a recovery in oil demand in 2021 – but only if the airline industry returns to normality and that is not expected to happen.
A 27% plus surge in prices this month will encourage OPEC to keep the cap for longer than planned to try and maximise the price surge and the benefit to their national budgets.
In Europe, Brent January crude futures rose 38 cents to settle at $US48.18 a barrel, while the more active February contract gained 46 cents to $US48.25.
In New York, West Texas Intermediate (WTI) crude futures fell 18 cents to settle at $45.53 a barrel.
Brent rose 7.2% over the week, while WTI was up 8% for the week.
For gold, the news from oil is a big negative and local investors won’t like it as the ASX re-opens today.
Gold fell to its lowest level since the end of September while silver hit a two month low.
Comex gold futures settled down 1.3% at $US1,781.90 an ounce and while it edged higher in after-hours trading it is still heading for a 4% plus fall this month.
Comex silver dropped 3.5% to $US22.63 per ounce and fell 6.4% so far this week.
Comex copper settled at $US3.40 a pound to be up more than 2% on the day, 3.9% on the week and more than 12% so far this month.
Gold prices have fallen $US300 an ounce in the past three months and the rise in the value of the Aussie dollar of more than 4% in the same time, is starting to add to the emerging pressures in the sector.
If it goes on big deals will be threatened, such as the merger of North Star and Saracen to unite the ownership of the Super Pit near Kalgoorlie. Look for a recasting of the merger terms if gold falls much further.