Gold prices rose on Wednesday, as oil prices declined and investors awaited the US Federal Reserve’s decision on interest rates, with markets widely pricing in an interest rate hike.
Gold rose in instant transactions 0.8 percent to $4,328.39 per ounce by 03:10 GMT, after recording its lowest level in more than a month on Monday. On the other hand, US gold futures for December delivery fell 0.9 percent to $4,369.50.
Frank Wallbaum, a market analyst at the Naga.com trading platform, said that a strict decision from the Federal Reserve may push gold lower, while any dovish messages may ease bets on raising interest rates and help the metal recover.
He added that traders are also monitoring oil prices and developments in the Middle East.
Gold is typically seen as an inflation hedge, but higher interest rates increase the opportunity cost of holding the non-yielding metal.
Oil prices fell after an unexpected rise in US crude inventories, at a time when investors were assessing supply risks, following the suspension of oil loadings at the port of Yanbu.
Markets are currently pricing in a 92.4 percent probability that the Federal Reserve will raise interest rates by at least 25 basis points later today, according to the CME's Fed Watch tool. The monetary policy decision will be followed by a press conference by Federal Reserve Chairman Kevin Warsh.
In the markets, Commerzbank said that it is noteworthy that gold prices have not been subjected to greater pressure so far, indicating that the metal’s steadfastness may be supported by the continued financial concerns that are reflected in the rise in long-term government bond yields, in addition to the recent increase in political risks in the United States.
In terms of other precious metals, silver rose in spot transactions 1.5 percent to $64.60 per ounce, platinum rose 0.7 percent to $1,788.25, while palladium increased 1.6 percent to $1,309.80.
Oil prices fell on Wednesday, after an unexpected rise in US crude inventories, while investors assessed supply risks following information about the suspension of oil loadings at the port of Yanbu, following an attack targeting the “East-West” pipeline.
Brent crude futures fell 93 cents, or 0.86 percent, to $107.82 per barrel by 00:28 GMT, while West Texas Intermediate crude futures fell 97 cents, or 0.92 percent, to $104.86.
The two crude oil prices ended trading on Tuesday at an increase of more than $3 per barrel, recording their highest levels since May 19, after the suspension of loadings in Yanbu raised concerns about supplies, in conjunction with Saudi Arabia reducing oil shipments heading to Europe.
According to market sources, data from the American Petroleum Institute showed a rise in crude, gasoline and distillate stocks in the United States during the week ending September 11.
Crude inventories increased by 7.1 million barrels, compared to analysts’ expectations of a decrease of about 1.6 million barrels, according to a poll conducted by Reuters.
Haitong Futures said in a note that unexpected increases in gasoline and diesel stocks put pressure on prices, but noted that the rise in stocks in some areas does not change the state of scarcity of supply in the global crude market.
Sources reported to Reuters on Tuesday that oil loadings at the port of Yanbu had been suspended, after the “East-West” pipeline was closed following an attack launched by the Iran-aligned Houthis in Yemen on Friday.
In Libya, the National Oil Corporation announced the suspension of operations in 3 oil fields, after protesters from the Petroleum Facilities Guard closed a valve in the Hamda-Al-Zawiya pipeline to export crude.
However, Libya's oil production was not significantly affected by these developments, and amounts to about 1.4 million barrels per day, according to the head of the corporation, Masoud Suleiman, to Reuters.
The Saudi Capital Market Authority imposed a new ceiling on foreign investments for public money market funds, so that investing the fund’s assets and funds outside the Kingdom does not exceed 5 percent of its net asset value, while granting fund managers transitional periods to reconcile existing investment conditions with the new requirements.
According to a circular sent by the Authority to financial market institutions, managers of public money market funds whose foreign investments exceed 5 percent must take the necessary measures to adhere to the specified ceiling within a period not exceeding two years from the date of the circular.
The requirement is not limited to new investments, as the circular stipulates that the fund manager shall not invest, conclude or renew any deal that would violate the specified ratio, until the procedures for reconciliation are completed.
The Authority set a shorter time frame for funds whose foreign investments exceed 20 percent of the net asset value, as the managers of these funds must reduce those investments to less than 20 percent within a maximum period of 6 months from the date of the circular.
Thereafter, fund managers must continue reconciliation procedures to reach the final ceiling of 5 percent, in accordance with the requirement specified in the circular.
This means that the generalization distinguishes between levels of exposure to foreign investments; Funds that exceed the specified ceiling are required to stabilize their positions during a transition period of up to two years, while funds with exposure exceeding 20 percent are subject to a faster path to first reduce that ratio to below 20 percent.
Conditions for credit rating
In parallel with setting the ceiling for foreign investments, the Authority obligated that all foreign investments of the General Money Market Fund be with parties with an investment-grade credit rating issued by a licensed credit rating agency.
In the event that there are foreign investments that do not meet this condition, the fund manager must take the necessary measures to reconcile the situation within a period not exceeding two years from the date of the circular.
The Capital Market Authority stressed the need for financial market institutions to comply with the circular, the financial market system and its executive regulations, and the Collective Investment Programs Compliance Department specified a destination for inquiries related to the new requirements.
