Oil declines, gold rallies as sanctions hit Russian bullion holders

Oil prices drop

Crude prices are declining as energy traders expect that after all the EU leaders, NATO, and G7 meetings, Russian energy will not be sanctioned anytime soon. Mixed European manufacturing data and the snapping of robust factory activity in the US did not do much for changing the opinion of how the crude demand outlook will be in the next few months.

The focus for oil remains with the war in Ukraine.  Some Russian military advances have ground to a halt, which is complicating Putin’s goal to secure the South, which includes the land corridor between Crimea and the Russian-backed separatists in Donetsk and Luhansk.

NATO members are not throwin’ away a shot at ratcheting the pressure against Russia right now. They will take time before they have to resort to an oil embargo on Russia.

Today’s weakness in oil prices should be limited given the geopolitical risk that still remains on the table and the fact that capital discipline by non-OPEC producers suggests it will take time to see other countries ramp up production.

Gold

Last week, a rallying stock market and surging bond yields was bad news for gold.  That is not the case anymore.  Even with initial jobless claims falling to the lowest levels since 1969, gold prices are surging as investors await the impact of the latest round of US sanctions that now prevent Russian sanctioned entities from any gold transactions.  If you are on that sanction list, it looks like you won’t be able to do any selling with your gold holdings.

A big part of today’s gold rally coincided with a wrath of Fed speak that suggests a much more aggressive pace of tightening policy, which will ultimately drive growth concerns by the time we get to the summer. For the day, gold is once again an inflation-hedge, safe-haven, and risky asset.

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