Key Takeaways
- Gold prices experienced a significant decline, hitting a three-week low due to increased investor risk appetite driven by easing trade tensions.
- Oil prices also fell for a third consecutive day, influenced by potential OPEC+ output strategies and the impact of US sanctions against Russian oil companies.
- Copper prices saw a dip as investors took profits, despite underlying positive factors like reduced inventories and trade optimism.
- The Federal Reserve’s upcoming policy meeting and ongoing US-China trade negotiations are key focal points for investors across markets.
Gold prices extended their fall on Tuesday as easing trade tensions boosted risk appetite among investors, weighing on the yellow metal.
Oil prices dropped over 1% on Tuesday, marking a third consecutive day of decline.
This dip in oil prices comes as investors weigh the impact of US sanctions against Russia’s two largest oil companies and consider a potential OPEC+ strategy to boost output.
Copper prices fell on Tuesday after the metal rose sharply at the beginning of the week.
Gold Extends Losses Amidst Rising Risk Appetite
On Tuesday, gold prices dropped over 2%, reaching a three-week low. This decline was attributed to an increase in risk appetite, fueled by optimism regarding easing trade tensions, which reduced demand for gold as a safe-haven asset. Investors are now focusing on the Federal Reserve’s policy meeting scheduled for this week.
On Monday, US President Donald Trump expressed optimism about reaching a trade agreement with China. Simultaneously, he announced several new deals on trade and critical minerals in Malaysia with four Southeast Asian nations. This announcement followed Sunday’s discussions where top Chinese and US economic officials laid out the framework of a trade deal, which Trump and his Chinese counterpart Xi Jinping are set to finalize during their meeting on Thursday.
On Monday, gold prices dropped over 3%, falling under $4,000 per troy ounce for the first time in three weeks. The price of spot silver saw a significant drop of nearly 5% on Monday, reaching a two-month low of $45.6 per ounce on Tuesday. This marks its lowest point since late September.
It is not unusual for silver to follow gold’s price movements downwards disproportionately.
Carsten Fritsch, commodity analyst at Commerzbank AG, noted in a report that silver’s sharp decline often mirrors gold’s downward price movements disproportionately.
Oil Prices Slip Amidst Sanctions and OPEC+ Considerations
Oil prices slipped on Tuesday after starting the week on a positive note in the previous session. Last week, Brent and West Texas Intermediate crude oil prices saw their most significant weekly increase since June. This surge was primarily a reaction to Trump’s imposition of Ukraine-related sanctions on Russian oil companies Lukoil and Rosneft, marking the first such action in his second term.
Investors are still considering the potential impact of the sanctions imposed on Russia. Since last Friday, prices have moderated slightly. Some analysts are questioning the effectiveness of these new sanctions, especially considering previous rounds. Lukoil has announced plans to sell its international assets.
This comes as the Organization of the Exporting Countries and allies are anticipated to declare another production increase, which would further decrease the output reduction that has been in place for several years.
Could that happen again, or will OPEC+ surprise to the upside this time?
David Morrison, senior market analyst at Trade Nation, suggested that the market may be questioning whether OPEC+ might surprise with a production increase, especially after announcing a smaller increase than expected earlier in the month. At the time of writing, the WTI crude was at $60.48 per barrel, down 1.4%, while Brent was down 1.3% at $64.08 a barrel.
Base Metals See Mixed Movements
Meanwhile, copper prices were nearing its May 2024 record high of $11,104.50 per ton. A US-China trade agreement would mitigate a significant downside risk for copper. Analysts at ING Group stated in a note that with supply disruptions stacking up and trade optimism growing, the outlook for copper is starting to look brighter.
Expectations of another Federal Reserve interest rate cut this week, following a softer-than-expected US inflation report last Friday, have also given industrial metals a further boost.
However, copper prices dipped on Tuesday as investors booked profits. Inventories at the London Metal Exchange continue to decline, but Thu Lan Nguyen, head of FX and commodity research at Commerzbank, indicated this is not indicative of a widespread supply shortage. Instead, she suggested it points to metal returning to the US, as the COMEX price has risen since September and now exceeds the LME price.
Nguyen found this development surprising given that the US government had refrained from imposing tariffs on refined copper and there are currently no signs that its stance will change. She further commented that the price difference is expected to be temporary, with a recovery in LME inventories likely, given that metal production remains high in China, the most important producing country.
Expert Summary
Markets showed varied reactions on Tuesday, with gold and oil prices declining amid improved risk sentiment and anticipation of OPEC+ actions. Easing trade tensions between the US and China provided a boost to investor confidence, impacting safe-haven assets like gold. Meanwhile, copper experienced a profit-taking dip despite underlying positive trade and supply dynamics.