Unusual situation on the financial markets: yesterday the prices of crude oil were falling, while at the same time the US dollar was rising, as well as gold and US bonds, where as a result the yield on 10-year papers fell to 1.52%.
Yesterday, WTI crude oil futures fell below the level of 80 dollars per barrel, and such prices were also maintained on Friday morning. Earlier, however, the price even dropped to the vicinity of $78, to make up for some of those losses and return to $79.5 per barrel of WTI.
OPEC+ sticks to plans
OPEC+ has rejected calls for additional supply increases. The group of oil producers agreed on Thursday to stick to its plan to increase output by 400,000 barrels a day from December. President Joe Biden's administration's threats to use the full range of tools to drive down oil prices were to no avail.
OPEC+ member countries justified their decision not to increase production beyond previously agreed levels by economic difficulties and supply-side caution. At the same time, sources in OPEC+ said the U.S. has ample room to increase production on its own if it believes the global economy needs more energy, the report said.
Banks delay, gold benefits
Gold prices remained above the $1,790 per ounce level on Friday. The price of bullion is going up after decisions by central banks that are toning down the very high expectations of financial markets for quick and large interest rate hikes. Although the Reserve Bank of Australia lowered its target for the yield curve, Governor Philip Lowe quashed talk of a rate hike in 2022. At the European Central Bank, President Christine Lagarde also clarified that the ECB is highly unlikely to raise rates next year. The US Federal Reserve, on the other hand, stated that investors should not see the end of asset purchases as a signal that rate hikes are imminent. Jerome Powell, Fed Chairman, indicated that it is supply bottlenecks and commodity shortages, not broad wage pressures, that are keeping inflation high. Finally, the Bank of England kept interest rates unchanged yesterday, defying expectations that it would be the first major central bank to raise rates post-pandemic.
Theoretically, the slower and smaller the interest rate hikes, the weaker the rise in bond yields, for which gold may provide an investment alternative. The less capital flows into bonds, the more it can flow into gold. Hence, interest rates may have such a significant impact on the quotations of the yellow metal.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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