COVID, Ukraine weigh on oil
The unwind of the oil trade is an easy one as a few reasons sent prices lower: China’s COVID surge has worsened as more lockdowns occur, expectations of a long Russia-Ukraine war has decreased as Eastern European leaders show unequivocal support for Ukraine’s independence, countries like India have bought Russian oil at a heavy discount, and manufacturing activity in the Empire State dropped to negative territory; the lowest levels since early in the pandemic.
Supply shortage fears have somewhat disappeared as the Russians are still selling their oil and crude demand destruction fears are getting real. A temporary China slowdown was somewhat expected given their zero-COVID approach, but the Empire State index plunge could be a worrying sign if next month’s reading doesn’t rebound strongly.
Earlier, WTI crude was roughly 28% lower from last week’s high and seemed poised to give up all the gains that occurred during the Russian invasion of Ukraine. WTI crude should find support ahead of the USD 90 level, but if China’s lockdown spreads much further, the mid-USD 80s would not be that hard to reach.
Gold
I never thought that I would be writing about both gold and AMC Entertainment Holdings' (NYSE:AMC) stock. In the past, a connection could be made with the new millennial trader pumping up meme stocks and riding the cryptocurrency rollercoaster, but they typically avoided gold. It appears meme stock trading is trying to make a comeback with Hycroft Mining (NASDAQ:HYMC), a little distressed gold miner, but that should suggest more companies will follow suit.
Gold prices are still heading lower even as bond market selloff takes a break ahead of the FOMC rate liftoff decision. It seems the gold market is a victim of the abandon widespread commodity appreciation trade. Gold prices are trying to find a floor and eventually will stabilize even if oil prices continue to slide. What will eventually provide some support for gold is that the world’s two largest economies are showing some signs of weakness. The US may have some softer economic data due to the surge in commodity prices and China will suffer economic weakness from growing COVID lockdowns.
Gold prices pared losses after Russian President Putin said that Ukraine was not serious about finding an acceptable solution. The war in Ukraine does not look like it will have any immediate de-escalations and that should provide underlying support for gold prices. If the FOMC decision shows some policy members are holding back some rate hikes on the dot plots, gold could get its groove back and make a climb back towards the USD 2000 level.