Is it all about oil? That is the question that many are likely asking themselves right now as the crude market continues to make headlines.
Crude is moving lower once again today and is now trading in the mid-thirties per barrel. Unfortunately for the oil bulls, the ongoing onslaught in crude appears to have more room to run. Oil posted its lowest close yesterday since 2009 and appears to be headed for the $40 per barrel mark or even lower.
The sell-off in oil is troubling investors and their concern is being reflected today in lower stocks. The Dow Jones Industrial Average is down over 200 points today while the SP 500 Index is lower by over 25 handles. A sell-off in energy and materials shares is the driving force behind lower equities today and may continue to drive further selling.
While the precious metals complex is mixed today with gold higher and silver lower, the metals could potentially see more buying interest if the selling pressure in stocks intensifies. The upside being seen in gold today can likely be attributed to short covering and bargain hunting.
The selling in stocks today comes at a time when investors may already be anxious over next week’s FOMC announcement. While a rate hike is expected by the Fed next week, volatility could potentially increase going into the announcement. In addition, position squaring ahead of the Fed cold also potentially add to volatile price action in markets.
The slide in oil will likely add to concerns over global deflation. This may keep the Fed from raising rates again in the near future and may keep the pace of any further rate hikes very slow and incremental.
The dollar index is also showing further signs of weakness and a near-term top may have been reached last week. While the stronger dollar likely weighed on gold and silver in recent months, the weakness being seen the last several days has thus far not fueled any strong buying in the precious metals. Of course, if the dollar continues to decline, that could change. The lack of any real reaction by gold to the dollar sell-off in recent days may, however, be indicative of underlying weakness.
The next several sessions may be very interesting as the Fed decision approaches. If further weakness in oil is seen in the coming days, volatility could increase dramatically from current levels.
