Oil prices fall, gold higher as yields drop

Oil slips further amid recession talk

Oil prices are heading lower for a third day, with WTI now closer to USD 90 a barrel than USD 100. Perhaps a surprising twist considering the remaining tightness in the market but also a further sign that investors are increasingly coming around to the idea of a recession in the not-too-distant future. That remains the primary downside risk for crude prices.

While the price drop will come as a relief to those anxiously eyeing the price at the pump every time they have to fill their cars, it doesn’t offer a promising backdrop to the next OPEC+ meeting in two weeks. There remains significant tightness in the market but the group is less likely to agree if the price is in the low 90s and markets are pricing in lower growth or a recession, especially if it strongly disagreed when it was USD 120. So I guess we’re heading for a recession or higher prices again. Oh, joy.

Gold buoyed by lower yields

Gold hasn’t had much to celebrate of late but it received a decent boost towards the end of the week from lower bond yields, even as the dollar strengthened a little on Friday. A weaker greenback didn’t help gold this time last week or early this week as yields remained steady but that’s not the case now and the yellow metal is reaping the rewards.

If investors are anticipating fewer rate hikes for whatever reason, that’s positive for gold at these levels. Throw in a recession and traders may be looking at a trusty safe haven in a time of need. I’m not convinced about the sustainability of lower yields which makes me doubt the gold rebound but one thing it has done is reinforce USD 1,680 as a key level of support.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam