Oil and gold look to FOMC

Oil looks to EIA data & FOMC

Oil prices are drifting lower on Wednesday as investors await fresh catalysts. The API report revealed an unexpected draw in crude inventories of just over one million barrels compared to expectations of a 2.7 million barrel build. The better-than-forecast API data points to demand picking up faster than expected following last month’s cold snap.

Attention will now turn to EIA stockpile data due later today. Expectations are for a build of 2.7 million barrels, following an eye-watering 13.8 million increase in last week’s data. A large fall in stockpiles could boost oil prices.

Falling stockpiles could be limiting losses in both benchmarks, which trade mildly lower. However, moves in the US dollar following the FOMC could also dictate where oil goes from here. USD-denominated oil trades with a negative correlation to the greenback. With this in mind, a hawkish Fed could drag oil prices lower.

Gold’s fate lies with the Fed

Gold is just about holding onto its bullish edge ahead of the FOMC. After striking a nine-month low at the start of the month, the yellow metal has been clawing back some losses. Weaker-than-forecast US inflation data and an easing back of bond yields have helped the precious metal make cautious progress. However, gold’s recovery from here is very much in the hands of the Fed.

Any hint of Operation Twist, whereby the Fed looks to buy up longer-dated bonds, is likely to be gold positive. But this is a less likely scenario if recent Fed chat is to be believed. The Fed is more likely to adopt its tried-and-tested position of reiterating its accommodative stance and highlighting that the US economy is still some way from the Fed’s goals. As long as Jerome Powell doesn’t send yields shooting higher than today’s, the FOMC could be supportive of further upside for gold.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.