Gold Flutters As Inflation Expectations Rise

Oil Prices Caught in Europe’s Conundrum

While the greenback continues to hold on to a solid standing, gold prices took a hit. The US Dollar’s strength can be attributed to an increase in crude oil prices leading to even worse expectations about inflation. Moreover, driving the hike in oil prices is the increased appetite of EU countries to move away from Russian energy sources.  A decision that would imply 27 bloc members to side with the UK and USA in banning Russian energy. This would certainly drive further price increases on oil.

However, Germany’s heavy reliance on Russia for its energy production could mitigate a potential strong response from the EU against Russia. Especially following the attack on the port of Mariupol. That’s why ongoing discussions about banning Russian oil in Europe are complex and must take into consideration the interests of European countries. Further considerations on this radical move are expected to take place as US President Biden tours Europe.

Meanwhile, American breakeven rates soared as crude oil hit a 7% surge overnight and these extreme prices are likely to push inflation expectations, and the value of gold, towards an uptrend.

Federal Reserve Affirms Rate Hikes

The precious yellow metal’s value could be limited by conjectures over the upcoming Federal Reserve policy. Indeed, a comment by Fed Chair Jerome Powell may be behind the reserved soar of gold. Mr. Powell mentioned that the Central Bank is ready to increase by over 25 basis points. Accordingly, treasury yields climbed to their highest level in 10-years. At this point, the markets’ reaction is a direct interpretation of the Fed’s policy. If they take a solid and consistent approach, it could mean bearish for gold. Whereas, a softer stance might trigger further price hikes. With that in mind, oil’s next direction is connected to EU policymakers’ next move regarding Russian energy exports.

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