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Oil rallies on China stimulus, gold higher on weaker dollar

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  • Commodities get a boost as China weighs broad stimulus
  • Gold’s Triple Top still holds
  • Dollar tumbles as Fed rate hike odds drop to 9.6% for Wednesday’s meeting

Oil

Crude prices got a boost after China prepared a broad package of stimulus. A surprise cut to the 7-day reverse repo rate sent a message to traders that the world’s second-largest economy is finally going to get significant stimulus that should help with their struggling post-COVID recovery. ​ In addition to China’s stimulus, energy traders are anticipating the impact from the Saudi oil price cuts to take tighten the market quickly next month. ​

Oil extended its rally after the latest inflation report sealed the deal for the Fed to skip a rate hike at this week’s meeting. ​ The disinflation process remains intact and that could mean the dollar’s days are numbered, which would provide some support for oil prices. ​

Gold

Gold initially got a boost after inflation hit the lowest levels since early 2021. For gold to rally, it needs Wall Street to become confident that the Fed is done raising rates. This inflation report was in-line, but some Fed members might be concerned that core pricing pressures are looking sticky. The Fed will remain data-driven, but optimism should be high that the end of tightening is near. ​

Even if the end of tightening is widely expected, gold may struggle if stocks continue rise. Risk appetite for equities continues to overextend, so eventually a mean reversion should be good news for bullion. ​ ​

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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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