Commodity wrap: gold prices fall as dollar rises; oil slumps on oversupply concerns

Gold prices were volatile on Tuesday, with traders anticipating another rate cut by the US Federal Reserve next month.

But, prices fell at the time of writing as the US producer price index, a key indicator of consumer price inflation, rose 0.3% from the previous figure, boosting the dollar index.

Meanwhile, oil prices slipped more than 1% as diplomatic efforts to put an end to the Russia-Ukraine war weighed on sentiment. 

Base metal prices were in the green as expectations of an interest rate cut by the US Federal Reserve next month buoyed the market. 

The three-month copper contract on the London Metal Exchange was at $10,886.33 per ton, up 1.2%, while the aluminium contract was at $2,818.45 per ton, up 0.1%. 

Gold falls

Gold prices fell after a volatile day of trading on a rising dollar, which limited demand for the yellow metal. 

The Producer Price Index (PPI), which tracks the average change over time in the selling prices received by domestic producers for their output, rose by a seasonally adjusted 0.3% month-over-month. 

This increase aligns with the consensus estimate from Dow Jones.

The rise from the previous figure points to a potential increase in consumer price inflation, which generally benefits the dollar.

Fed Funds Futures are now pricing in a 25 basis point interest rate cut by the US Federal Reserve with a probability of around 83%.

Last Thursday, this was only 30%.

Influential New York Fed President John Williams signalled openness to an interest rate cut in December on Friday. 

Furthermore, Fed Governor Miran indicated his readiness to vote for a 25 basis point reduction, a move he believes would help secure a majority for the action within the FOMC.

At the time of writing, the COMEX gold futures fell 0.5% to $4,146.65 per ounce, while silver was at $50.487 an ounce, down 1.3%.

Oil slips again

Oil prices dropped on Tuesday due to ongoing worries about oversupply, which overshadowed concerns that sanctions would continue to affect Russian shipments due to the lack of a clear outcome in the peace talks to end the Ukraine war.

During the weekend, the US and Ukraine finalised a new peace agreement in Geneva to conclude the conflict.

This plan includes points that diverge from the 28-point proposal previously hammered out with Russia.

The feasibility of this plan is uncertain, as Russia's agreement is not guaranteed. 

The Kremlin has already dismissed a separate proposal from the EU, casting doubt on the prospect of a resolution and, consequently, leading to another rise in oil prices on Monday.

Carsten Fritsch, Commerzbank AG analyst said:

The sanctions prompted refineries in India and China to cease purchasing Russian oil. 

This decision resulted in a decrease in Russian oil exports and a corresponding rise in the volume of Russian crude oil stored in tankers at sea, which would eventually re-enter the market.

Russia is seeking to increase its oil exports to China due to limited alternative sales options. 

Russian Deputy Prime Minister Alexander Novak stated on Tuesday that discussions are underway between Moscow and Beijing to expand the volume of Russian oil being exported to China.

At the time of writing, the price of West Texas Intermediate crude oil was down 2.5% at $57.37 per ounce, while Brent was at $61.24 per barrel, down 2.4% from the previous close.