Oil pulls back, gold soars

Oil eases but should remain elevated

Oil prices are pulling back a little today, once again seeing some resistance around the October highs after a strong rebound over the last week. The EIA Short Term Energy Outlook appeared to give US President Biden reason not to utilise the Strategic Petroleum Reserve in order to take some heat out of the market, as it forecast gasoline prices to fall over several months.

This may have supported crude prices in the near term, although I’m not sure how seriously traders were taking the threats from the White House. Ultimately, it’s OPEC+ that holds the power at this point and it’s unlikely that we’ll see any action from them this side of the new year. That should keep oil prices elevated for now.

Inflation hedge gold soars

It’s not often that the dollar, yields and gold surge at the same time but that’s exactly what we’re seeing today. This is most evident in gold which is flying as a result of its role as an inflation hedge. We may have seen signs of this over the last month, with the yellow metal being fairly resilient against the backdrop of higher yields. But it’s clear as day today. Inflation is uncomfortably high and investors want protection.

The move was probably exacerbated by the break of USD 1,833 which had been a firm level of resistance since July, despite numerous challenges during that time. Whether that be stop losses being triggered or traders piling in, the spike that followed was big and what’s more, it’s holding onto those gains.

The dollar gave a large portion back following the initial spike but recovered to trade back around its intraday highs. US 10-year yields reacted in a similar manner while those at the shorter end hung on in much the same way as gold, which suggests the Fed will be forced to act sooner than it would like. The message may well have to drastically change ahead of the December meeting, with two hikes now priced in next year, the first in July.

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