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Oil rises, do-or-die time for gold

Oil rallies on soft inflation data

Crude prices settled higher after first going on a rollercoaster ride in early trade.  Oil prices tumbled early after China announced the plan to sell 7.38 million barrels from its strategic reserves.  Last week, China shocked energy markets by announcing that they would tap their reserves for the first time.  The China reserve sale-driven drop was short-lived as energy traders viewed the amount of barrels as small, roughly a half day’s worth of crude processing.

The focus in the energy market still remains on US production and if Storm Nicholas leads to flooding that could keep production shut-in.

WTI crude rallied after a softer than expected CPI reading sent the dollar sharply lower.  Oil rallied alongside all risky assets as the smallest price gain in seven months suggested the Fed won’t be in a hurry to make a taper announcement.

The US inflation report showed the index for airline fares plunged, decreasing 9.1% over the month, a confirmation that demand has moderated.

With an oil market still heavily in deficit, WTI crude will continue to rise if US stockpiles continue to fall and if China’s economy doesn’t slow down too much.  Over the short term, WTI crude should not have much trouble hitting the mid-USD 70s.

Gold

Gold prices got a strong boost from a lighter-than-expected inflation report, that completely removed the risk of a September Fed taper announcement and likely shifted expectations all the way to December.  Treasury yields plunged and that helped gold tentatively pierce the USD 1800 level.  This is a pivotal moment for gold and if it can’t push higher as yields plunge, selling pressure could quickly return.

CPI is decelerating and that should be very good for gold in the short-term as real interest rates go down.  After the August CPI print, gold should have enough momentum to stabilize above USD 1800 by the end of today, but if it doesn’t, it could get very ugly.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya [4]

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya