Commodities and Cryptos Shine as risk aversion hits Wall Street: Oil surges, Gold and Bitcoin rally

Oil

Energy traders shrugged off the EIA announcement that 60-million barrels of crude will be released.  Crude prices can’t stop going higher as a very tight oil market will likely see further risk to supplies as the War in Ukraine unfolds.  Expectations for a revival of the Iran nuclear deal have come down a bit as talks still have a few key issues.  Brent crude could surge to the $120 level if the oil market starts to think it is likely that sanctions will be placed on Russian energy.

Normally oil will consolidate before an OPEC+ meeting on output, but expectations are very high for no change with the gradual output increase strategy.  Given the recent surge with oil prices, oil traders should not be surprised if the Saudis decide to deliver a slightly larger output increase with production.  If this trajectory in oil prices continues economic growth prospects will take a big hit and that could lead to a significant deterioration with the medium-term crude demand outlook.

Gold

As investors run to the sidelines and worry about economic growth prospects, gold is starting to look like a favorite trade for many.  Gold is surging and could be making another run towards the $2000 level as expectations for a major economic slowdown globally could trigger safe-haven flows.  The War in Ukraine is making many central bankers want to hold off on stimulus reduction until they have a better handle on the situation.

Gold will benefit from dovish notes as the Fed won’t begin tightening with a super-sized hike and interest rate hike expectations will likely get pushed back to the end of the year. The $1980 level remains key resistance for gold this week.

Bitcoin

Bitcoin is turning bullish here as it is showing it can rally even when risk aversion hits Wall Street.  Investors are selling stocks and piling into Treasuries, commodities, and cryptos.  As the Ukraine crisis deepens, diversification away from the Russian rouble is growing and that has led to flows into cryptos.  It looks like the Crypto Winter is over and prices have stabilized.

The focus over the next couple of weeks will remain with the war in Ukraine and with Fed policy.  If financial markets grow nervous that the Fed will become more aggressive in removing accommodation, Bitcoin could settle back to the lower boundaries of its widening trading range just below the $40,000 level.

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