Oil hit with a one-two punch, gold lower on strong dollar

Oil

Oil prices are weakening as crude demand outlook is hit by a one-two punch from China’s rising COVID cases and Wall Street jitters that inflation is hitting the US economy much harder than analysts were expecting. Oil will struggle to hold the USD 100 level if China’s Covid situation deteriorates much further. ​ Macau shutting down all non-essential businesses including casinos for one week caught everyone’s attention and could be a big red flag that we could see harsher restrictions down the road. This week has a couple of big events that include an inflation report and bank earnings that will likely suggest the US economy is weakening quickly and that will weigh on how much travel Americans do for the rest of the year. ​

Energy traders will pay close to President Biden’s trip to the Middle East, but expectations are low for any meaningful oil production increase commitments to come from the Gulf nations. ​ The main purpose is to improve US relations with Saudi Arabia and that means Biden will have a careful approach on how he asks for help with pressuring Russia and China. ​ ​ ​ ​

Weighing on crude is also a relentlessly strong US dollar that could see further strength leading up to this week’s pivotal inflation report on Wednesday. ​

Gold falls on recession fears

Gold prices are lower as recession jitters continue to send the US dollar higher. ​ Inflation is playing tug-of-war with gold and the precious metal is trying to hold the line. A hot inflation report on Wednesday will cement aggressive Fed rate hike expectations for later this month and drive up expectations for September’s meeting. With Wall Street focused on if the Fed will send this economy into a recession, king dollar will likely remain the trade and that is a difficult environment for gold. ​

Gold is still vulnerable here and could see selling pressure test the USD 1700 level, with the USD 1670 area proving major support. ​

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