Commodities and Cryptos: Oil softer as supply returns, Gold steady

Oil

Crude prices are lower after Libya’s largest oil field resumed production, Kazakhstan’s TCO oilfields are back to normal levels, and as China’s zero-COVID tolerance will lead to new restrictions.  The oil market will likely remain very tight as the world learns to live with COVID.  Travel bans will continue to be lifted as the focus will go to testing and that should do wonders for international travel once test makers have a better handle of the situation.

Considering how much oil prices rallied last week, the current weakness is somewhat limited given how tight this market is still expected to be throughout the first quarter. WTI crude may continue to drift here until a better understanding is had with how successful China is in preventing further spread of omicron.

Gold

Gold prices steady despite a continued Treasury yield surge as Wall Street prices in more Fed rate hikes this year.  With global bond yields hovering near pre-pandemic highs, gold prices are not performing too terribly.  The Fed can control the short-end of the curve, but the back-end is a different story.  The balance sheet runoff is the big question mark and that will likely drive the flattener and have many investors needing an alternative safe-haven such as gold at some point this year.

Now that the Fed is rushing to get rates to neutral and to start shrinking the balance sheet, which means the yield curve could flatten more and that is good news for gold.

Bitcoin

Bitcoin and Ethereum got knocked down early as Treasury yields surged as expectations remain strong that inflation will not ease anytime soon, prompting the Fed to deliver more than a few rate hikes this year. Everyone was expecting one more major slide before crypto traders would be willing to test the waters. Bitcoin’s plunge below $40,000 was short-lived as was Ether’s drop below $3,000.  The top two cryptocurrencies have an uphill battle to return back to their respective all-time highs as the cryptoverse is now providing more investment opportunities that include NFTs, metaverse bets, and several altcoins that are making a run to become the next big blockchain.

Short-term volatility will remain elevated for Bitcoin and Ethereum, but for long-term hodlers, the outlook still looks bright.

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