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The gold to crude oil ratio remains above 35 marks, as geopolitical tensions intensified and recession fears have spurred the market. WTI crude oil futures gained some traction to trade above $71.3 per barrel, extending the rebound from the 15-month low of $65 touched on September 10th amid expectations of stronger global energy demand and higher risk premiums from rising tensions in the Middle East. The Fed delivered an aggressive 50bps rate cut, stimulating the outlook for fuel consumption in the US and major economies, in addition to providing some leeway for the Central Bank of China to ease borrowing costs and support demand in the world’s top oil importer. In the meantime, markets are eyeing a looming supply increase from OPEC+. |
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Figure 1: Gold COMEX front contract, crude oil front month contract Additionally, EIA data revealed a larger-than-expected decline in US crude inventories, which fell by 1.63 million barrels to 417.5 million, surpassing the forecasted 500k-barrel draw. Gold futures rose above $2,570 per ounce after retreating from record levels in the previous session, as markets continued to assess the Fed’s decision. Fed officials also project that the benchmark rate could decrease by another half percentage point by the end of the year. This move is seen to increase appetite for gold by reducing the opportunity cost of holding non-yielding assets. However, during a press conference, Chair Powell stated that the Fed is not in a rush to ease monetary policy and emphasized that the dot plot projections for the federal funds rate should not be seen as a policy plan. Recent data also showed that US inflation is trending lower, though some stickiness remains. Elsewhere, gold’s safe-haven appeal was strengthened by some political uncertainty, following reports that Republican Presidential candidate Donald Trump faced a second assassination attempt last week. |