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 $1850 level, with a softer inflation report potentially being the catalysts to go higher.