Oil declines continue, gold eyes FOMC

Oil falls as demand concerns dominate 

Oil is extending its sell-off on Wednesday as demand concerns continue to stalk the market and inflation fears refuse to die down.

While optimism surrounding the economic re-opening in the West helped drive Brent to USD70, the move has proved unsustainable and somewhat irrational given the Covid picture in Asia.

Rising Covid cases in India, Japan, Taiwan, Thailand and Vietnam have prompted fresh lockdown restrictions, raising concerns over softer fuel demand.

The global picture for demand is probably the most divided it has been since the start of the pandemic, with an improving demand picture in the West versus a deteriorating outlook in Asia. The mixed picture is contributing to the volatility we have seen across recent sessions.

Rising inflation fears are adding pressure to oil as market participants sell out of risker assets.

The next round of talks to revive the 2015 Iran nuclear deal kick off today, and will continue to attract attention as the rumour mill swirls. Yesterday’s suggestion that progress has been made towards a breakthrough, which sent oil prices tanking, was then quickly denied by senior Russian diplomats.

Gold awaits the FOMC minutes

Gold is edging lower on US dollar strength and rising treasury yields ahead of the FOMC minutes later. A sense of caution is prevailing ahead of the release. The minutes are expected to reiterate the Fed’s dovish stance, highlighting any rise in inflation as transitory. Dovish minutes could propel the precious metal higher. Until then, dollar dynamics are expected to drive movement in gold. The yellow metal has broken below support at USD1865, with bears looking to test the 21 SMA at USD1855. Meanwhile, a break above trendline resistance at USD1871 is needed for further gains to be achieved.

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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.