Inflation and Energy prices and Central banks!
US crude oil and Brent crude oil continued both hit new highs since July 2014, above $111 and 115 US dollars per barrel. Although the US and major economies agreed to release 60 million barrels of oil reserves, the latest report of API crude oil inventories unexpectedly fell by 6.1 million barrels (2.796 million barrels expected vs. 5.983 million barrels previously), and Crude Oil Inventories fell by -2.597M barrels in the last week's US, according to the EIA weekly report.
In addition, the European Parliament has called for restrictions on oil and gas imports from Russia, while the UK has begun a review of its agreements with Gazprom, and Canada already banned any gas and oil imports from Russia. The latest news from the US also shows divided ideas in the US about the imports the Oil from Russia. The US also may join Canada and ban imports. While Russia is one of the main suppliers of crude oil and natural gas, this series of measures increased the oil and gas price, and the dilemma of soaring inflation will be difficult to relieve.
On the other hand, the crisis in Russia and Ukraine seems that can change the monetary policies of major central banks around the globe. The data shows that the market no longer expects the Fed to raise interest rates by 50 basis points in March, while the probability of raising interest rates by 25 basis points is nearly 90% and it is decreasing and can be under question. Today as we know Mr. Powell had testimony in House and In prepared remarks for his testimony to the US House of Representatives Financial Services Committee, Powell repeatedly told the core Fed narrative that high inflation and an "extremely tight" labor market warrant higher interest rates, but also talked about ongoing Russian-Ukrainian war and told that it made the economic outlook "highly uncertain" for US central bank policymakers as they plan their next steps.
So far, we know that the bet on the Bank of England raising interest rates by 100 basis points has been postponed to 2023, which was previously expected to be December this year. For ECB bets on a 25 basis point rate hike also has postponed to March 2023, from previously expected of January 2023. Cooling expectations for interest rate hikes also led to a collapse in US and European bond yields. US 10-year bond yields hit a more than 1-month low under 1.77% before re-increasing above 1.80. UK 10-year bond yields fell the most since 1992 under 1.2%. German 10-year bond yields Yields fell the most since 2011 all way down under -0,080%. Italian 10-year bond yields fell the most since March 2020 under 1.40%. Most of them later gained a bit as overall Mr. Powell's answers to the committee were still hawkish.
Upward inflation pressure, cooling expectations of central banks to hike rates and pushing the real yields lower. These factors all provide reasons for gold to rise. Actually, in the past hours, we also had the news about the second round of Russia-Ukrain talks, which decreased the market risk, as well as the gold price down towards 1,900 USD, while earlier it was trading above $1950.
