Oil slumps, gold slides as risk aversion firmly in place

Oil

Oil prices declined as the global growth outlook continues to deteriorate and as geopolitical risks have yet to lead to any disruptions for crude exports. ​ To start the trading week, it seemed energy traders were anticipating some disruptions from either Iraq or Libya and so far that doesn’t seem to be the case. ​

Today, everything seems to be turning bearish for oil: First, global markets still have a Fed headache that has everyone bracing for further pain for households and businesses. ​ Today’s wrath of EU inflation data supports aggressive tightening that could send Europe into a severe recession. Best Buy’s earnings showed consumers are pulling back on spending, confirming the trend of a much weaker US consumer and raising fears of much weaker growth by the end of the year. Lastly, Taiwan’s military reportedly fired warning shots at a Chinese drone, reminding traders how the tensions between the two world’s largest economies might not see a de-escalation anytime soon, which would weigh on demand for Chinese goods.

The oil market is still tight, so this downward move should not last much longer. If WTI crude easily breaks below the $90 level, bearish momentum could make this interesting and make a run for the August lows. ​ ​ ​

Gold declines as inflation accelerates

Gold prices are declining as investors continue to see a wrath of elevated inflation data that supports the argument for further global central bank tightening. ​ Gold’s rough patch seems like it will continue a little while longer as gold-backed ETFs continue to see outflows.

A weaker dollar and a flight-to-safety might be what is needed for gold to stabilize and that could be happening. ​ If the ECB doesn’t disappoint and delivers a massive 75 basis-point rate increase and if equities tumble as earnings expectations crumble, gold’s bleeding could stop. ​ Geopolitical risks and the global energy crisis impact to growth should eventually lead to safe-haven flows for the yellow metal. ​ ​

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