Commodities and Cryptos: Crude’s upbeat demand outlook, Gold still in the danger zone, Bitcoin strengthens

Oil

Crude prices continue to rally as optimism overflows on how strong the demand recovery will be later this year.  It seems Americans are anxious to book summer vacation rentals as COVID vaccines become more readily available.  Expedia CEO Kern was downbeat on the travel market, noting that it “will remain bumpy and unpredictable.”, but some are attributing those cautious comments as a standard Wall Street to lower expectations.  The crude demand outlook looks like it could get its best-case scenario as Americans who want a COVID vaccine will be able to get it by April.  With several approved vaccines out there, emerging markets are also getting their hands-on vaccines.

WTI crude is having an amazing February and given the strength heading into a long weekend, it seems energy traders are hesitant on scaling back.  The OPEC+ output strategy appears to be on cruise control until March and that should mean oil prices will extend their gains if the reopening of the economy optimism continues.

Gold

Risks of rising Treasury yields triggering a resilient dollar have taken some of the love away for gold.  Gold prices remain in the danger zone if yields become materially more supportive.  The 10-year Treasury yield is now higher by 3.3 basis points and approaching the 1.20% level.  The US COVID vaccine rollout appears poised to provide any American who wants to get vaccinated a chance to do so by April.  If we start to see large parts of the economy return to normal and the Biden administration delivers over $1.4 trillion in relief now and queues up infrastructure spending to happen before year end, the Fed may need to acknowledge that we are seeing a “substantial improvement” with the economy.

The problem however remains that the uncertainty that exists with virus variants, currently the South African strain of the coronavirus is making its way across the US.  Despite all the current optimism for later in the year, the Fed will likely remain ultra-accommodative given the state of the labor market.

Economic scarring will warrant easy money for a lot longer and that should still provide underlying support for gold prices.  Gold could test the $1,800 level over the long weekend and that could make trigger one last strong push lower before buyers emerge.  The $1750 to $1760 zone remains critical support for gold.

Bitcoin

This Bitcoin had a great week after getting a massive $1.5 billion investment from Tesla, new endorsements from both MasterCard and BNY Mellon, and after Purpose Investments got the nod for launching the first Bitcoin ETF.  Skepticism for cryptocurrencies continues to come from central banks, this week from Bank of Canada’s Deputy Governor Lane and Russian central bank Governor Nabiullina.

The key for Bitcoin’s path higher is to win over more corporate endorsements.  GM CEO Marra has no interest in owning Bitcoin, while Twitter continues to evaluate their options.  Uber CEO noted they won’t buy Bitcoin but said they will consider accepting Bitcoin if there is a need for it.

Bitcoin is hovering near fresh record highs and anything seems possible ahead of the long weekend.  Bitcoin is no stranger to massive weekend moves and the next several days could easily see some wild swings.  Given the lighter-than-usual trading volume from the Lunar New Year holiday, momentum traders will have a short leash on the breaking of the $50,000 level.

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