Optimism drives oil, gold eyes NFP

Oil sees another week of strong gains

Oil is pushing higher on Friday, recouping mild losses from yesterday. While momentum appears to be slowing, oil is still on track to book gains of more than 4% across the week, following on from over 4% gains in the previous week.

Optimism surrounding the demand outlook is driving prices higher. Markets are shrugging off the prospect of an increased oil supply entering the market in the coming month following OPEC’s decision to continue with its current plan of easing output restrictions.

The broad narrative in the market is one of US economic strength, which is supportive of rising oil demand. As the vaccine rollout continues in the US and Europe, oil demand is only expected to continue increasing from here.

US crude inventories declined by more than expected last week, although fuel stocks rose slightly.

Attention will now turn to the US jobs reports for further clues on the economic recovery and US dollar movement.

Gold licks its wounds ahead of NFP

After a steep sell-off in the previous session, gold has found support. The precious metal tumbled almost 2% lower on Thursday as investors increasingly bet the Fed would start tightening monetary policy sooner. Yields pushed higher while the US dollar hit a three-week peak, dragging on demand for non-yielding, US dollar-denominated gold.

Where gold goes from here depends largely on today’s non-farm payroll numbers and, to a degree, the Fed’s reaction. A stellar jobs report will make it increasingly difficult for the Fed to defend its ultra-easy monetary policy.

Gold is currently finding support from the multi-month ascending trendline dating back to the year-to-date lows struck in March. A strong non-farm payroll could see the price of gold break below the trend line and head back towards USD1800.

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