Commodities and Cryptos: Oil slumps, Gold rebounds, Bitcoin plunges

Oil

Crude prices are sharply lower after Evergrande debt default fears triggered a flight-to-safety that sent the dollar higher.  Evergrande’s woes are threatening the outlook for the world’s second largest economy and making some investors question China’s growth outlook and whether it is safe to invest there.  In addition to risk aversion flows pumping up the dollar, some investors are anticipating further hawkish signals that the Fed will set up a formal November taper announcement on Wednesday. 

Complicating the move in crude prices is the surge to record highs for UK gas futures.  Europe does not have enough gas and the energy problem could intensify if the early weeks of winter are cold. 

The US Gulf of Mexico production continues to recover from hurricane season, with now only 18.3% of offshore production being shut-in.  The oil market will still be heavily in deficit early in winter and if more demand comes that way, energy traders will buy any dip they get with crude prices. 

Gold

Gold’s rout is taking a break as investors run to safety over concerns Evergrande’s debt default concerns could spillover.  Gold got a boost as Treasury yields plunged, with the 10-year yield falling 5.4 basis points to 1.307%. 

Gold’s rally could have been much higher if not for the reports that Senator Manchin may be thinking of suggesting Congress take a “strategic pause” until 2022 before voting on the $3.5 trillion social-spending package.  Considering stocks are about to have their worst day since October, it is very disappointing that gold prices are only up around $10.  Gold may continue to stabilize leading up to the FOMC decision, with the next move likely being further downside.  Gold could struggle until the Fed finally starts tapering asset purchase.  It is then that it may start acting more like an inflation hedge.    

Bitcoin

A retest of the September low came far too easily for Bitcoin.  The fallout from the Evergrande is putting a tremendous dent in risk appetite that is sending everything lower. Cryptocurrencies, despite all the volatility, have been the best performing asset of the year, so it should not surprise Wall Street they are the first asset sold in the beginning of China-driven market selloff.    

Retail traders remain bullish, albeit many have capitulated in locking in some profit.  Some traders are anticipating a short pullback, while some lunatics are readying to buy more after tomorrow’s full moon.    

In El Salvador, President Bukele tweeted “We just bought the dip. 150 new coins!”  El Salvador’s total is now 700 coins and that enthusiasm has yet to be matched by other countries.   

If Bitcoin breaks below the $40,000 level, it could see momentum selling have it eventually return to the $30,000 to $40,000 range that it was in earlier this summer.  

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

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