A heavy blow to start the week

Delta weighing heavily on oil

Oil prices are under considerable pressure once again today, with Covid concerns once again being front and centre.

Rising Chinese delta cases and restrictions has cast doubt over the economy in the short-term, with the world’s largest crude importer keen to get to grips early with any outbreak, just as it has done in the past.

With various countries seeing surging case numbers of the delta variant, it’s difficult to gauge the economic impact globally, especially given different successes with the vaccine rollout and different attitudes towards restrictions.

The UK, for example, has among the highest vaccine rates and no restrictions, but other countries may not be so bullish, even with high take up. Many don’t have the luxury.

Obviously China is different than most others though, due to how much oil it imports and consumes which is why outbreaks there have an outsized impact.

The fact that China is already importing lower numbers of crude, as well as other commodities like iron ore and copper, doesn’t help the outlook or prices. Although crude imports did rebound in July as state backed refiners returned from maintanence.

Gold bounces back but remains in bad shape

Where do we start with gold (or silver for that matter)? First thing to say is that they are in bad shape following Friday’s jobs report.

While there’s still plenty of data to come over the next month that could sway the FOMC, it’s looking inevitable that a taper announcement is not far away, probably in September.

That’s naturally bad news for gold prices, with US yields now back on the ascendency and the 10-year pushing 1.3%. The dollar is in good shape once again and this is bad news for the yellow metal and it seems the combination of these factors with major technical support levels and low liquidity, caused the plunge we saw overnight.

Gold smashed through $1,750 support and it seems the stops and illiquid markets did the rest, with the price not finding support then until roughly $1,680, which was key support in March and marks the 61.8% retracement of the 2020 lows and highs.

Price has since rebounded, which will provide no comfort to those caught up in the turmoil, but remains just below $1,750, which now stands out as major potential resistance.

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