Market Wrap - Gold and Energy

Energy

Crude oil prices rebounded in Asia on Monday in response to last week's sharp fall in the U.S. with disappointing Chinese trade data shrugged off for now.

Over the prior ten weeks, drillers in the U.S. have cut 103 rigs. A lower U.S. rig count is usually a bullish sign for oil as it signals potentially lower production in the future. The oil market has been volatile in recent months amid uncertainty about how quickly the global glut of crude is set to shrink.

In China, consumer prices for October rose 1.3% year-on-year, below the 1.5% gain expected, while producer prices eased 5.9%, less than the 5.9% fall seen.

Over the weekend, OPEC Secretary General Abdullah al-Badri sent strong indication that its members were close to making the necessary adjustments in order to tackle many of the world's energy concerns.

In a statement posted on the International Energy Forum's website, al-Badri noted that a plethora of cancelled projects have provided a "clear demonstration that wide price fluctuations have had a detrimental effect on investments.

Overnight, crude futures closed moderately higher on a choppy, volatile day of trading, amid stark warnings from the International Energy Agency on the ramifications of severe investment cutbacks in the industry.

In its annual World Energy Outlook for 2015, the Paris-based International Energy Agency (IEA) cautioned that lower oil prices could trigger sizable energy security concerns by increasing the reliance on a limited number of low-cost producers.

By 2020, the IEA forecasts that a tightening of the global supply-demand imbalance will lead to a price around $80 a barrel "with further increases in prices thereafter."Crude prices have also fallen precipitously since OPEC roiled global energy markets last November with a strategic decision to maintain its production ceiling above 30million barrels per day.

West Texas Intermediate oil futures wallowed near a two-month low on Thursday, amid speculation weekly supply data due later in the session will show U.S. crude inventories rose at a faster pace than expected last week.

U.S. crude fell for a third session in a row on Friday to the lowest in over two months as a relentless climb in oil stockpiles helped trigger a 10 percent drop in prices since the start of November, with traders taking on bets on further falls.

There are also signs that traders are preparing for more price falls this year and into 2016, with the number of options taken to sell crude futures if prices fall to $40 or even $25 per barrel between December 2015 & June 2016 soaring over the past month.

The glut is a result of high production by most major producers, including countries making up the Middle East-led Organization of the Petroleum Exporting Countries (OPEC), but also Russia and North America.

Gold

Gold ticked up after an eight-day losing streak on Monday, but languished near its lowest in three months as surging U.S. nonfarm payrolls boosted expectations of a December rate hike in the United States.

As investors increased bets that the first rate increase in nearly a decade will come next month, they sent non-interest-paying gold tumbling to $1,084.90 an ounce on Friday, the lowest since August. The dollar hit its highest in nearly seven months, while U.S. Treasury yields also jumped.

Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 0.40% to 669.09 tonnes on Friday, the lowest in nearly three months, as investors exited bullion.

While the market braces for a U.S. rate hike, a consensus is forming at the European Central Bank to take the interest rate it charges banks to park money deeper into negative territory in December, in a move that could weaken the euro and push up inflation.

Gold was mired near a three-month low on Tuesday on expectations the U.S. Federal Reserve was well on track to raise interest rates before the end of the year.

The employment report released last week has strengthened the conviction of economists who have been forecasting a December interest rate increase, according to a Reuters poll published on Tuesday.

The survey of over 80 leading economists found a 70 percent median chance the U.S. central bank would raise its short-term lending rate at its final meeting of the year, next month.

Gold languished near a three-month low on Thursday as investors positioned themselves for a U.S. rate hike this year, although they still awaited more cues from Federal Reserve officials speaking later in the day.

Gold fell for a twelfth session out of thirteen on Friday, trading close to a near-six year low on rising bets that the Federal Reserve would hike U.S. rates next monthand as investors pull out of bullion-backed funds.

Bullion has been under pressure recently as expectations for a December rate hike in the United States strengthened after a robust nonfarm payrolls report earlier this month.