Commodities and Cryptos: Oil rallies Gold Shines, Bitcoin higher

Oil

Crude prices rallied alongside risky assets after Fed Chair Powell signaled a lengthy debate over the balance sheet runoff.  A long road to normal means the economy will still see a lot of support over the first half of the year and that is good news for crude prices.

Oil prices seem poised to trade between $80 and $100 a barrel as the global demand outlook still looks upbeat as most major economies are getting closer to the other side of the omicron fence.  NY Gov Hochul said, COVID rates are plateauing in NYC, but that hospitals are still under much stress.

WTI crude is poised to make a run towards last year’s highs if stockpiles continue to decline.

Gold

Gold prices rose as the bond yield rally paused as Fed Chair Powell signaled the Fed is likely to begin normalizing policy this year.  Gold forecasts for the year are all over the place, with most economists/analysts anticipating weaker prices as higher interest rates and fresh record highs for equities might dent demand for the precious metal.

The reason why gold will outperform is not a clear one, but it seems unlikely that the back-end of the Treasury curve will see yields go significantly higher once we get past the first couple rate Fed rate hikes.

While the economy looks very strong this year, possibly headed for a GDP reading above 4%, next year could be a quick return to near 2% growth, which has it vulnerable to a wide range of risks. As the Fed tightens conditions, we will see large pockets of froth struggle and the risks of inverting the curve will grow.  The longer gold stays above $1800 the more annoyed the shorts will become.

Cryptos

Fed Chair Powell’s confirmation hearing provided another update on the heavily anticipated cryptocurrency report, which is now expected within weeks.  Bitcoin was volatile during Fed Chair Powell’s testimony, settling higher alongside all the other risky assets.  Risk appetite returned on Wall Street after Fed Chair Powell signaled he expects the Fed to begin normalizing policy this year, but that a decision on balance sheet reduction could take up to four meetings.  The path of inflation may drive quicker rate hikes and a sooner start to shrinking the balance sheet and that could be bearish short-term for risk assets such as cryptos, but equities will likely feel more pain.

There is still significant money on the sideline waiting to buy Bitcoin, but many crypto traders are having a wait-and see approach to see if some potential death cross patterns trigger a major selloff.

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