Investing

Gold Pares Losses, Bitcoin Exhaustion

By Amanda Peel

OANDA – Stocks rally as Russia-Ukraine advance, 2s10s Curve briefly inverted, Oil tumbles, Gold pares losses, Bitcoin exhaustion

US stocks rallied after Russia-Ukraine talks brought hope that a potential de-escalation is nearing. Initially, risk appetite roared higher after Russian negotiator Medinsky said Russia will ‘drastically, cardinally’ cut military activity near Kyiv and Chernihiv. Progress in talks was not widely expected so Wall Street delivered a strong reaction. Stocks gave back some of the gains after Medinsky clarified that a de-escalation around Kyiv and Chernihiv does not mean ceasefire.

Stocks will have a bumpy road even if a major de-escalation occurs as inflation pressures will linger into next year. It looks like Wall Street thinks the economy is still on solid footing even after the 2s10s curve inverted for the first time since 2019. The countdown for a recession starts, but growth should still be strong at the very least for the next few quarters. The inversion didn’t last long but that was somewhat to be expected given how optimistic large parts of Wall Street remain.

Oil

Crude oil prices pared losses after a pivotal round of Russia-Ukraine peace talks did lead to a ceasefire. Initially, oil had a precipitous fall after Moscow said they would reduce military presence near Kyiv. Energy traders are quickly abandoning $200 oil calls as inventories are not declining as fast.

The oil market will remain tight for quite a while as US production won’t ramp up quickly, especially after the Biden administration will resist selling offshore drilling rights in the Gulf of Mexico through at least October 2023. Russian output is expected to decline given the sanction pressure from the West.

WTI crude might be poised to trade around the $100 level, but if Russia-Ukraine talks take a turn for the worse, oil could return back to last week’s highs.

Gold

Gold prices plunged after Russia-Ukraine peace talks yielded some progress. For a moment, it looked like the biggest geopolitical risk could be poised for a major de-escalation, and the safe-haven trade was quickly abandoned. Gold will hold the $1900 level until it is confirmed that Russia is pulling troops. Peace talks are headed in the right direction, but it is still too early to be overly optimistic that a major de-escalation is around the corner.

Bitcoin

Bitcoin bulls ran out of steam after hitting overbought territory. Even today’s risk-on session on Wall Street after progress was made with Russia-Ukraine talks, Bitcoin couldn’t muster up a rally. It looks like Bitcoin is going to consolidate here and could be vulnerable to profit-taking towards the $45,000 level.

The long-term bull case for Bitcoin is still in place, but exhaustion in the recent runup is settling in.

This article originally appeared at ValueWalk.

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