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METAL IN SIGHT OF 2013 TROUGH

The dollar index jumped to a four-year peak on Thursday

Oil, gold plunge to new lows on strong dollar

SINGAPORE, September 18, 2014

Brent crude dropped towards $98 per barrel, while gold tumbled to its lowest in 8-1/2 months on Thursday as the dollar index jumped to a four-year peak on fears about a looming US interest rate increase.

Poor demand and abundant supplies have pushed down the oil benchmark to a 26-month low earlier this week, and have kept it below $100 for more than a week.

Brent crude for November delivery was down 50 cents lower at $98.37 a barrel by 0321 GMT. The October US crude contract fell 63 cents to $93.79.

"There's nothing to push it higher. The dollar is getting stronger and the overall market is weak with high inventories," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

The dollar climbed to its highest in more than four years against a basket of currencies amid indications that an increase in US interest rates might happen faster than expected when the Federal Reserve starts tightening monetary policy.

A stronger dollar makes dollar-priced commodities such as oil more expensive for buyers using other currencies.

US crude stocks rose 3.7 million barrels last week, defying analysts' forecasts for a drop of 1.6 million barrels, due to climbing imports and lower refinery run rates, data from the Energy Information Administration data showed on Wednesday.

But Nunan said oil prices may be approaching their bottom, having fallen steeply from June and with markets looking forward to a potential output cut by the Organisation of the Petroleum Exporting Countries.

Brent has lost around 15 per cent since hitting a nine-month peak of $115.71 in June.

"We've come down so far that now with talks of Opec cutting supply, I think we are pretty close to the bottom and the market could be moving sideways from here," Nunan said.

Gold in sight of 2013 lows

Before Thursday, gold had dropped for four sessions out of six on worries that any increase in rates would dim the appeal of non-interest-bearing assets such as bullion.

Gold's slide to eight-month lows over the last week has brought it within sight of a cluster of chart support lines near its 2013 lows, a breach of which could set up a slide back to$1,000 an ounce.

Any support for gold prices could come from a pickup in physical demand in Asia as a drop towards $1,200 an ounce could potentially attract bargain hunters.

"The shift higher in the anticipated Fed funds rate for the end of 2015 and 2016 could further weigh on gold prices longer term and act as a headwind to future rallies," HSBC analysts said in a note.

"If the dollar remains firm, gold should stay on the defensive," they said.

Spot gold fell to $1,216.01 an ounce early on Thursday, its lowest since Jan. 2, before paring losses to trade flat at $1,223.11 by 0317 GMT. The metal lost nearly 1 per cent the day before.

US gold futures slid 1 per cent to $1,224.

"Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks," said MKS Group dealer Jason Cerisola.

The US dollar had been gaining in strength even before the Fed statement, as speculation rose that the US central bank would raise rates sooner than the market consensus of mid-2015.

Premiums in top buyer China picked up on Thursday, climbing to $5-$6 an ounce, up from about $4 in the previous session. – Reuters




Tags: Oil | Gold | Dollar | Brent Crude | Federal interest |

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