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Crude drops while gold shines

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Oil extends losses

Crude prices extended declines on a possible de-escalation with the Ukraine situation and possible progress with Iran nuclear talks. This was an easy trade for energy traders as the bullish run higher has clearly hit some exhaustion.  Oil’s weakness was primarily from incremental progress over geopolitical tensions and a stronger dollar that emerged from rising Treasury yields.

The focus will shift to US stockpiles and expectations are for inventories to post a modest build.  US production has been hampered by cold weather however that won’t last as rig counts have been rising. US shale producers are not aggressively embracing higher oil prices as they have in the past, so that should support the ‘buy the oil dip’ mentality going forward.

Gold

Gold is starting to attract a wide range of investors that are looking for safe-haven protection as the Fed may embark on an aggressive tightening cycle that could start to weigh on financial conditions.  Gold could be on the verge of a major breakout if inflation moderates, and the dollar does not catch a major bid if the bond market selloff accelerates.  The short-term risks for gold stem from a potentially hotter-than-expected inflation report that could send the 10-year Treasury above the 2.00%. Gold is still an inflation hedge if pricing pressures moderate.

Gold should find strong resistance at the USD 1850 level, with a softer inflation report potentially being the catalysts to go higher.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. 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. Prior to OANDA 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, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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