Commodity Roundup: Gold drops 1%; oil risk premium continues to fade – analyst

Gold prices (XAUUSD:CUR) dropped more than 1% on Thursday, slipping below $2,300 an ounce, weighed down by a firmer U.S. dollar index (DXY), while oil prices gained after a sharp fall in the previous session on demand concerns. Spot gold was down -1.09% to $2,298.42 by 6 am ET.

The Fed left interest rates unchanged on Wednesday, as expected. However, Chair Jerome Powell acknowledged that while the central bank remains committed to bringing inflation back to its 2% target, he noted progress toward that goal and rejected the idea of an imminent rate hike.

Traders were relieved that Powell slammed the door shut for further hikes, helping gold prices climb back above $2,300, City Index senior analyst Matt Simpson told Reuters.

“What traders would love to see now is a softer set of NFP figures… We’re fast approaching the second half of the year, and for all the time central banks continue to pile into physical gold, I suspect gold can hold above $2,000 for the remainder of the year and break above $2,500,” Simpson added.

Lower interest rates increase the appeal of holding non-yielding bullion.

“The commodity complex has benefitted from a run-up in prices in recent months. Geopolitical tension and supportive fundamentals led speculators to boost their positioning. However, from oil to cocoa (CC1:COM), prices have come under pressure this week,” ING said in a note.

“The risk premium in the oil market continues to erode as geopolitical tension in the Middle East eases. However, this is a factor that could return to the market, so is not something that should be fully discounted,” ING analysts noted.

Meanwhile, OPEC oil output has fallen in April, a Reuters survey found, reflecting lower exports from Iran, Iraq, and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC+ alliance.

Among base metals, copper prices (HG1:COM) ticked lower, after breaching $10,000/t for the first time in two years recently, as better than expected, April manufacturing activity in China boosted the outlook for demand. “These gains have eroded as hopes of an imminent rate cut fade,” ANZ Research said.

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