Oil edges lower, gold sinks

Oil pares gains amid Covid restrictions and economic fears

Oil prices are a little lower again on Monday after a remarkable run over the last month that saw crude rally more than 20%. While many factors remain bullish as a result of the extreme tightness in the market, there are two things that have constantly been a potential downside risk and we're seeing both flaring up.

Covid cases in China mean more restrictions and lockdown risk, while global economic fears are now mounting and we're now not far from recessions being factored into the markets. Both of these have the potential to weigh on demand and offer more balance in the market given the supply shortfall.

The Norwegian strike action was avoided thanks to a late deal with unions which may be contributing to the price action today. Meanwhile, supply disruptions in Libya remain an upside risk.

Gold slides amid higher yields

Despite all of the risk aversion in the markets, gold is sliding more than 2% to test the lower end of its recent range at USD 1,830. The driver of all of this negativity in the markets centers around high inflation and higher yields which have been bad news for gold this year. Still a safe haven in many circumstances, a higher dollar and yields are a big negative for the yellow metal and a break of that support may now be on the cards ahead of the Fed meeting on Wednesday when a 75 basis point hike is being increasingly priced in. Although the base case is still 50 basis points.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/