Crude prices turned negative after both USD 80 oil triggered some profit-taking and a surge in Treasury yields delivered a stronger dollar. The dollar rally could extend as safe-haven flows appear to be the dominant trade since Washington shows no signs in ending the budget stalemate.
Oil’s six-day rally was not meant to be, in fact it became a double-top pattern for some energy traders. WTI crude hit session lows after OPEC Secretary-General Barkindo highlighted that the oil demand recovery will continue, but it may be slow and bumpy.
Oil’s fundamentals continue to support much higher prices, so today’s weakness might not last too long.
Gold drops as US dollar rises
Gold is having a bad day, actually it has been a terrible month. Treasury yield curve steepening is driving the dollar higher and dampening demand for bullion. The 10-year Treasury has gone from 1.30% to over 1.50% in just under a week as this reset of inflation expectations wreaks havoc for gold traders.
Rubbing salt in gold’s wound is that it is not attracting any safe-haven flows as risk aversion accelerates with the S&P 500 having its worst outing since May, the Nasdaq’s worst performance since March, and as the Dow turns negative for the quarter.
If global bond yields continue to rise, gold seems vulnerable to a test of the USD1700 level.
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