Oil climbs higher, gold drops

Oil prices head higher

Crude prices are rising again as energy traders continue to pile into the reopening trade.  The energy market shrugged off a surprise 1.28-million-barrel build from the EIA weekly crude oil report.  Expectations were for a 6.7-million-barrel draw, but the surprise increase came from the West and was a result of shocks due to the storm.

The impact from the deep freeze sent crude production tumbling 10.2% to 9.7 million bpd.  Crude exports fell 40.1% and imports posted a 29-year low.

The reflation trade and vaccine optimism has given the energy market to keep pushing oil prices higher.  Despite a stronger dollar, oil prices are still looking attractive for many traders.

No relief for gold from Powell

It was Day 2 for Fed Chair Powell on Capitol Hill. Powell’s testimony today before the US House Financial Services Panel provided no major revelations.  The Fed firmly believes there’s a long way to get back to maximum employment as 10-million jobs will likely take a while to comeback.  Powell reiterated optimism for the outlook later this year.

Gold can’t handle the spike in global bond yields.  Gold bulls got another dovish commitment from Fed Chair Powell in his testimony on Tuesday, but the move in yields will keep the dollar supported in the short-term.  Adding to gold’s woes is the steady unwind of ETF gold holdings for a seventh consecutive day.

Gold is having a terrible start to the New Year and further pain appears on the horizon, but a complete collapse is unlikely.  The Fed wants to see higher bond yields but not at the current pace.  A steepening of the curve will continue to happen, but it won’t get out of control because the Fed has signaled they are committed to their bond buying program.  Gold’s longer-term bullish trend will reassert itself once the yield surge is over and dollar weakness resumes.

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