Crude Oil's Reaction To The US Inflation, Gold Demand Assumption

Crude slides as recession risks build

The US inflation data caused shockwaves throughout financial markets, with oil also sliding on the back of the release. A recession is now the primary bear case for crude given the tightness in the market and it’s clear here as much as anywhere how serious the economic risk is being taken.

Both Brent and WTI are now back below USD 100, down around 20% over the last month, and they may well remain below there which would have been inconceivable in mid-June. Central banks are in panic-tightening mode and the inflation data isn’t easing up. Throw in more Chinese Covid restrictions and the market will start to look far more balanced, just not in the way anyone wanted.

Will gold demand soon return?

Gold has recovered the post-CPI release losses after threatening at one stage to break below USD 1,700. While this may come as a relief to some, it may not last considering the moves we’ve seen in interest rate expectations, yields and the dollar.

The yellow metal is looking pretty vulnerable at the minute but if a recession becomes the base case, that may change. It is a safe haven after all and there may come a point where the economy buckles under the weight of inflation and interest rates and gold will increasingly find itself in demand.

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