Gold jumps by the most in 6 weeks as crude oil rallies

Gold futures settled sharply higher on Monday, along with broader gains in the commodity complex, as a surge in prices of crude oil offered some signs of a potential increase in inflation, bullish for precious metals’ prices.
December gold GCZ7, -0.17% finished up $12.40, or 1%, to $1,281.60 an ounce, marking the highest single-day gain for bullion since Sept. 25, according to FactSet data. Monday’s advance helped gold to claw back some losses after its lowest finish for a most-active contract since early August on Friday. The contract ended last week with a 0.2% decline for its third weekly fall.

The exchange-traded SPDR Gold Trust GLD, +0.85%  was up 0.9%.
Ira Epstein, managing director at commodities broker Linn Group, attributed the recent rally to a combination of an upswing in commodities, highlighted by a surge in crude-oil prices CLZ7, -0.23% and wobbles in the dollar. An increase in oil futures can point to a coming increase in inflation. He also said receding interest rates and the U.S. dollar have helped to deliver a boost for the yellow metal.

“We have had now a week and half of falling interest rates—not rising—and the dollar is starting to respond to that,” Epstein said. “And, there’s a feeling that this inflation is grabbing hold again, and with that you are getting a lift with the metals market.” The yield of the benchmark 10-year Treasury note TMUBMUSD10Y, +0.20%  was at 2.31% Monday afternoon.

Gold is often viewed as a hedge against rising prices or inflation. Meanwhile, lower rates and a weaker dollar can lure buyers in gold, which doesn’t bear interest and is priced in the U.S. currency.

The ICE U.S. Dollar Index DXY, +0.34% which measures the buck against a half-dozen rivals, was down 0.2% at 94.76. The index and gold typically move inversely, as a firmer dollar makes gold less attractive to investors using another currency.

Read: Bitcoin may be staging the biggest challenge yet to gold and silver
Last week’s signs of a strong pickup in service-sector activity and a mixed employment report that continued to show weak wage growth backed up expectations for a metals-negative interest-rate increase next month.
Investors also focused on developments for tax reform as Senate Republicans work on their version of a bill after the House advanced their approach last week.

Meanwhile, last week, President Donald Trump officially nominated Fed Gov. Jerome Powell as the next head of the Fed. Powell is seen as being dovish, similar to current Chairwoman Janet Yellen, meaning they’re more inclined to wait for inflation to show up before substantially raising rates.

“An era of extraordinary Fed accommodation is coming to a close. Within days of Janet Yellen’s dismissal [at the end of current term] comes news that Bill Dudley, the New York Fed President, will also leave. Both were among the most dovish Fed officials in a generation, willing to keep policies loose until inflation became apparent—and it still hasn’t,” said Greg Valliere, chief global strategist with Horizon Investments, in a note.

“The Fed is now on track to wind down its balance sheet, and several rate hikes—maybe four—appear likely in the next 12 months, thanks to the tightening labor market, dramatic fiscal stimulus, soaring deficits and, perhaps, the whiff of inflation that Yellen and Dudley managed to avoid,” he said.

Nov 7 2017
Market Watch

Read: What a Jerome Powell-led Fed might look like

In other metals, silver for December delivery SIZ7, -0.78%  was up 40.1 cents, or 2.4%, to settle at $17.235 an ounce, marking its best single-day rally since Nov. 1 when it jumped 2.9%. The exchange-traded iShares Silver Trust SLV, +2.20%  was up 2.1%.

December copper HGZ7, -1.46%  picked up 4 cents, or 1.2%, to end at $3.1575 a pound. January platinum PLF8, -0.87% rose $13.10, or 1.4%, to $935 an ounce, while December palladium PAZ7, +0.11%  advanced $3.60, or 0.4% to $995.10 an ounce.