Oil rally continues, gold dips below 1900

Oil set for solid weekly gains

Oil prices remain elevated for the sixth straight day on Friday as upbeat US data and re-opening optimism keep prices buoyant. Robust US jobs data on Thursday underpinned risk appetite, cementing hopes of a strong economic rebound in the US, the world’s largest oil consumer.

Oil demand is expected to continue rising in the coming quarter as summer travel ramps up in Europe and the US following a rapid vaccine rollout. Rising oil demand in the West is offsetting the softer tone surrounding demand in Asia, where Covid cases remain elevated. However, the demand outlook should also start turning around in Asia in the coming quarter as Covid numbers come under control.

Concerns over Iranian oil re-entering the market have lingered across the week. However, in the case of a revival of the Iran nuclear deal, the lifting of sanction on Iran’s oil exports are unlikely to be immediate, with oil gradually re-entering the market across the second part of the year.

Attention is turning towards Monday’s OPEC+ meeting. The oil cartel plus Russia are expected to stick with the current plan of gradually increasing output.

Gold slips below USD1900

Gold is edging lower for a third straight session amid caution ahead of the US PCE inflation data later. After rallying to a high of USD1912 earlier in the week, the yellow metal has slipped back below USD1900 and is testing support at USD1890. However, it would take a move below USD1870 to negate the current near-term uptrend.

All eyes are on the inflation numbers and expectations surrounding the Fed’s next move. Gold’s fate hinges firmly on the reading. A strong PCE print following the elevated CPI inflation print is likely to spark fresh bets on the Fed tightening policy earlier. This could pull gold further from its recent four-month high.

Looking beyond the PCE numbers, Biden’s budget and month-end flows are also expected to exert a strong influence on gold.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/

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