A strong divergence seems to be emerging between the price of oil and the price of gold. The US dollar and bond yields, on the one hand, and increased geopolitical uncertainty, on the other, may contribute to this divergence.
The gold price seems to have fallen on Monday for the fourth consecutive session below $1,790 per ounce, which could translate into the biggest monthly price drop since September 2021.
Gold safe, but doesn't guarantee interest
An ounce of gold in global markets is settled in the U.S. dollar, and the dollar appears stronger after the Federal Reserve's news. The U.S. central bank said last week that it is likely to raise interest rates in March and will begin reducing its balance sheet shortly thereafter to fight inflation. Markets appear to be pricing in five quarter-point rate hikes this year.
Although gold is considered a hedge against inflation, interest rate hikes would raise the opportunity cost of owning non-yielding bullion because gold pays no interest. The dollar, meanwhile, rose to an 18-month high last week and its index surpassed 97 points, making gold more expensive for holders of other currencies. Gold fell 2.3 percent below $1,800.
Oil with the best month since February 2021
WTI crude oil futures appeared to be holding above $87.5 a barrel on Monday and could be heading for a 17 percent price gain this month, the biggest rally since February 2021.
Oil prices in January may be influenced by capacity constraints and geopolitical risks, which have heightened supply concerns. While OPEC+ is expected to remain on schedule for a February 2 production increase of 400,000 barrels per day for March, the group fell short of its targets as some members struggled with capacity constraints and as a result, less oil may have come to market than previously anticipated.
Geopolitical tensions in Eastern Europe and the Middle East also seem to be helping oil prices. The head of NATO said on Sunday that Europe needs to diversify its energy supply, and Britain warned that it is highly likely that Russia wants to attack Ukraine. The market is also in a state of greater uncertainty over the situation in the Middle East following attacks on the United Arab Emirates by Yemen's Houthi group. The above factors seem to be keeping the oil price close to levels last seen as much as 7 years ago.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.17% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
