Crude prices got hit with a one-two punch from Moderna CEO’s concern over the current MRNA vaccines effectiveness with Omicron and after the Fed sent the dollar higher and brought forward rate hike expectations. Energy traders will be stuck in wait-and-see mode over the next couple of weeks until a clearer picture emerges over how bad lockdowns and travel restrictions get with this new COVID variant. The short-term crude demand outlook is a giant question mark and that has many traders turning bearish with crude prices. All eyes will be on OPEC+ for the rest of the week. OPEC+ will likely pause production increases in response to the globally coordinated strategic petroleum releases and as the crude demand outlook took a big hit from the latest COVID jitters.
Gold falls as Powell turns hawkish
Gold prices got punished after both Fed Chair Powell turned hawk and signaled a faster taper and on optimism after reports that many of the Omicron cases across Europe have been mild or asymptomatic. Rate hike expectations are once again increasing but the real yields are not. The inflation risk is still the biggest risk on the table and that is why the Treasury curve is flattening.
Gold will eventually stabilize once it gets through this tough period of stimulus withdrawal. The risks of a Fed policy mistake are growing and given what the long-end of the curve is doing, gold might start seeing support fairly soon.
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.