January 5 financial breakfast: gold prices hit a six-month high, demand concerns dragged oil prices down by more than 5%

The dollar traded near 104.24; the greenback fell Wednesday after the minutes of the Federal Reserve's December meeting offered no surprises or new information on the size of the expected rate hike in February; gold prices extended gains to touch their highest level since mid-June, helped by a pullback in the dollar and U.S. bond yields. Oil prices fell more than $4 a barrel, with Brent crude suffering its biggest two-day percentage drop since 1991 in the first two trading days of the year, weighed down by demand concerns related to the global economy

Commodity close: Brent crude futures settled at $77.84 a barrel, down a sharp 5.2 percent. U.S. crude futures closed at $72.84 per barrel, down 5.3%. U.S. gold futures rose 0.7 percent to $1,858.40.

U.S. stocks closed: The Dow Jones closed up 0.40% at 33,269.77; the S&P 500 closed up 0.74% at 3,852.50; the Nasdaq Composite closed up 0.69% at 10,458.76.

Thursday's Preview

Precious metals

Gold prices extended gains Wednesday, hitting their highest level since mid-June, helped by a pullback in the dollar and U.S. bond yields. Spot gold rose 0.7 percent to $1,852.64 an ounce, after earlier gaining as much as 1.4 percent to reach its highest price since June 13.

We're looking at the possibility that inflation may have peaked and if we see economic data confirming that ......," said Bart Melek, head of commodity market strategy at TD Securities That would keep gold on the upside and possibly close to $1,865."

U.S. job openings in November indicated a tight labor market, leading to expectations that the Federal Reserve will stick to its tightening actions for a longer period of time. However, other data showed weaker demand amid rising borrowing costs and the factory input price index fell to its lowest level in more than two-and-a-half years, suggesting commodity deflation.

Silver fell 0.9% to $23.78 an ounce, platinum dropped 0.8% to $1,075.76, while palladium jumped 4.5% to $1,786.47.

Crude Oil

Oil prices fell more than $4 a barrel Wednesday, with Brent crude suffering its biggest two-day percentage drop since 1991 in the first two trading days of the year, weighed down by demand concerns related to the global economy.

Brent accumulated a decline of about 9.4 percent in the first two trading days of the year, the biggest two-day drop at the start of the year since January 1991, according to Lufthansa Eikon data. Bob Yawger, head of energy futures at Mizuho Bank in New York, said crude oil was lower on concerns about the epidemic and the Fed-driven global recession, both demand-destroying events, "The state of the global economy and interest rate hikes by a number of central banks also had an impact on crude oil prices.

The U.S. Institute for Supply Management (ISM) said U.S. manufacturing contracted further in December, falling for a second straight month to 48.4 from 49.0 in November, the weakest reading since May 2020. Meanwhile, a Labor Department survey showed job openings fell by 54,000 to 10,458,000 in November, sparking concerns that the Federal Reserve will keep interest rates high, citing a tight labor market.

Saudi Arabia, the biggest oil exporter, may cut the selling price of its flagship Arabian Light crude to Asia in February, with prices already set at a 10-month low this month as oversupply concerns continue to cloud the market.

    

Foreign exchange

The dollar fell Wednesday after the minutes of the Federal Reserve's December meeting offered no surprises or new information on the size of the expected rate hike in February. The Fed raised rates by 50 basis points last month, and Fed officials agreed that a slower pace of rate hikes would allow them to continue to increase the cost of credit and control inflation in a gradual manner designed to limit risks to economic growth.

The minutes also focused on explaining that the decision to move to a smaller rate hike should not be interpreted by investors or the public at large as a weakening of the Fed's commitment to bring inflation back to its 2% target.

Brian Daingerfield, head of G10 FX strategy at NatWest Markets, said, "I don't think the minutes provided significant new information that the Fed's hawkish outlook was reflected in the upward revision of the median interest rate estimate for 2023 at the December meeting and "in the press releases, forecasts and statements made at the time release, forecasts and statements were well reflected."