Gold and Crude Oil Await Dollar Break for Their Own Commitment

Gold and Crude Oil Await Dollar Break For Their Own Commitment
Gold and Crude Oil Await Dollar Break for Their Own Commitment
The safe haven US Dollar is not catching its wind as risk assets continue to display a traction that suggests further deterioration in investor sentiment, threatening the resilience of growth-sensitive commodities. In addition, a steep selloff in US equities that has driven global benchmarks to near-record levels is also weighing on investor risk appetite.

Oil is reversing recent gains, retreating from its highest level since mid-February while precious metals are flirting with an upside breakout above key resistance ahead of the crucial US Nonfarm Payroll release this Friday. In addition, the US government is making a significant effort to reduce gas prices by repurchasing crude oil in the Strategic Petroleum Reserve when it is at or below $67-$72 per barrel.

With the Federal Reserve likely to hike interest rates at its March 22nd meeting, markets continue to pricing in the central bank’s peak rate around 5.50%, which is also the level for long-dated US Treasury yields. This pricing action adds credence to the market’s hawkish Fed rate hike expectations.

While the US economy is still in a weak position to sustain another rate hike, the market’s uncertainty on that front may have played a role in the sharply softer jobs number. However, the market’s guessing game could continue as it awaits the US Fed’s next meeting on Wednesday for clues to rate lift-off.

As such, investors are avoiding any directional bets on precious metals in the run-up to that event. Moreover, a key support at the 100 DMA has been challenged and the risk-appetite that has so far remained high is likely to wane as a result of a pronounced decline in US equity benchmarks and the accompanying deterioration in investor risk sentiment.

Gold is treading water above the $1,800 level, unable to establish clear directional impetus in the face of a broad-based retracement in speculative bets on the US Dollar following hawkish comments from the US Fed Chairman Jerome Powell. Meanwhile, Gold traders remain hesitant to place any directional bets on a possible breakout above the key 100 DMA resistance at $1,830.

On the other hand, the spectre of geopolitical and financial instability looms over both commodities and the global economy. A more material deterioration in risk-appetite that translates to a material reduction in the demand for growth-sensitive commodities would further erode investor confidence, undermining a resilience that has already been weakened by a sharply weaker USD and a rise in US Treasury yields. It is thus not surprising that both precious metals and crude oil have been a victim of this week’s hawkish market volatility.