Firm Greenback Weighs on Demand for Dollar-Denominated Gold, Crude Oil

There was notable activity in the commodities markets during the holiday-shortened week. Gold prices finished marginally lower after touching a six-week high on Monday as the U.S. Dollar firmed. Crude oil closed slightly lower and inside the previous week’s range as traders began to question whether the seven week rally was running out of steam, and natural gas retraced about 50% of its two week rally on renewed weather concerns.

Gold Prices

Gold climbed to a six-week high last Monday, driven by news that U.S. congressional leaders reached agreement on a COVID-19 aid package, while lockdowns in the United Kingdom soured appetite for riskier assets and added to the precious metal’s support.

Last week, February Comex gold settled at $1883.20, down $5.70 or -0.30%.

Later that day gold erased early gains to fall by as much as 1.3% and spent the rest of the week trying to regain its upside momentum, under pressure from an advancing dollar as fears of a new coronavirus strain roiled markets and forced tougher restrictions.

Risk-off sentiment played a role in the weakness with Forex and equities participating in the price slide. The new variant of the virus sparked renewed uncertainty and instead of choosing gold as a safe-haven, investors sought protection in the U.S. Dollar, which weighed on foreign demand for dollar-denominated gold.

Crude Oil Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil also fell in similar fashion as gold with the common factor between the two commodities being the firmer U.S. Dollar.

Crude oil prices tumbled nearly 3% last Monday as a fast-spreading new coronavirus strain that has shut down much of Britain and led to tighter restrictions in Europe sparked worries about a slower recovery in fuel demand.

Last week, February WTI crude oil settled at $48.23, down 1.01 or -2.05% and February Brent crude oil finished at $51.29, down $0.97 or -1.89%.

Based on the price action the rest of the week, Monday’s sell-off represented a knee-jerk reaction to the virus news rather than the start of a change in trend. This assessment became more evident on Wednesday when oil prices rose more than 2%, boosted by draws in U.S. inventories of crude, gasoline and distillates that lifted investors’ hopes for some return in fuel demand.

Natural Gas Prices

The holiday-shortened trading week was not kind to the natural gas market as prices plunged on weak cash prices, forecasts calling for milder temperatures and light heating demand according to the U.S. government’s weekly storage report.

Last week, February natural gas futures settled at $2.512, down 0.169 or -6.30%.

Prices dropped sharply on Wednesday after the Energy Information Administration’s (EIA) reported a withdrawal coming in several Bcf below what the market had been expecting. The EIA said that inventories fell 152 Bcf for the week-ending December 18, while analysts had pegged the draw closer to 160 Bcf.

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