Oil retreats after FOMC, gold takes dive

Oil slips but upward trend remains

Oil prices have edged lower on Thursday on the back of a stronger US dollar. The Fed’s surprise move accelerating the path towards policy normalisation caught the oil market off guard. Oil prices have recovered from session lows quickly, thanks in part to upbeat inventory data.

Data from the EIA revealed that crude oil stockpiles dropped steeply as refineries boosted operations at the fastest pace since before the pandemic. Inventories declined by 7.4 million barrels in the week to 11 June. The draw was stronger than expected, also due to a rise in exports, which indicates demand is picking up worldwide.

Today’s decline had barely touched the strong rally that oil has witnessed over the past month. US dollar strength has not been able to derail oil’s incredible recent rally. The uptrend is firmly intact.

Oil prices have soared more than 11% across the past four weeks on growing demand expectations.

Gold could see more downside coming

Gold is licking its wounds on Thursday, attempting a small rebound after tanking in the previous session. Despite inching higher today, the yellow metal still trades around its lowest level in a month, hit hard by the stronger US dollar and treasury yields after the Fed’s sudden hawkish turn.

The Fed signalling it might start reining in interest rates in 2023, sooner than anticipated, is bad news for non-yielding gold. While gold is a hedge against inflation, a rate hike by the Fed takes the shine off the non-yielding investment.

Today’s rise could be seen as a selling opportunity rather than a change of position by the market. A dovish Fed has been gold’s best friend, but now the hawks are returning its time to rethink long positions in gold.

Gold breached several key support levels after the hawkish Fed announcement, bringing with it a considerable shift in the technical outlook.

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