Commodities and Cryptos: Oil rallies Gold Shines, Bitcoin higher

Oil

Crude prices rallied alongside risky assets after Fed Chair Powell signaled a lengthy debate over the balance sheet runoff.  A long road to normal means the economy will still see a lot of support over the first half of the year and that is good news for crude prices.

Oil prices seem poised to trade between $80 and $100 a barrel as the global demand outlook still looks upbeat as most major economies are getting closer to the other side of the omicron fence.  NY Gov Hochul said, COVID rates are plateauing in NYC, but that hospitals are still under much stress.

WTI crude is poised to make a run towards last year’s highs if stockpiles continue to decline.

Gold

Gold prices rose as the bond yield rally paused as Fed Chair Powell signaled the Fed is likely to begin normalizing policy this year.  Gold forecasts for the year are all over the place, with most economists/analysts anticipating weaker prices as higher interest rates and fresh record highs for equities might dent demand for the precious metal.

The reason why gold will outperform is not a clear one, but it seems unlikely that the back-end of the Treasury curve will see yields go significantly higher once we get past the first couple rate Fed rate hikes.

While the economy looks very strong this year, possibly headed for a GDP reading above 4%, next year could be a quick return to near 2% growth, which has it vulnerable to a wide range of risks. As the Fed tightens conditions, we will see large pockets of froth struggle and the risks of inverting the curve will grow.  The longer gold stays above $1800 the more annoyed the shorts will become.

Cryptos

Fed Chair Powell’s confirmation hearing provided another update on the heavily anticipated cryptocurrency report, which is now expected within weeks.  Bitcoin was volatile during Fed Chair Powell’s testimony, settling higher alongside all the other risky assets.  Risk appetite returned on Wall Street after Fed Chair Powell signaled he expects the Fed to begin normalizing policy this year, but that a decision on balance sheet reduction could take up to four meetings.  The path of inflation may drive quicker rate hikes and a sooner start to shrinking the balance sheet and that could be bearish short-term for risk assets such as cryptos, but equities will likely feel more pain.

There is still significant money on the sideline waiting to buy Bitcoin, but many crypto traders are having a wait-and see approach to see if some potential death cross patterns trigger a major selloff.

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