Oil softens, inflation hedges gold

Oil

Crude prices returned to session lows after the EIA report showed inventories rose by 1.0 million barrels last week.  Gasoline and Distillate inventories posted larger-than-expected declines. Cushing, the biggest storage hub in the US, only posted a decline of 34,000 barrels.  Concerns were growing that Cushing supplies were getting dangerously low.  The small decline in Cushing was not as good as the 234,000 build the API reported yesterday. Refinery utilization rose for a third consecutive week, up to 86.7%.

This EIA crude oil inventory report was overshadowed by mounting political pressure to ease rising energy costs. It seems unlikely crude prices can break above recent highs until energy traders see whatever action will come from the Biden administration. The oil market deficit is firmly in place and that should prevent WTI crude from seeing a significant pullback.

Gold climbs on US inflation

Gold people – All around me feeling this hot hot hot inflation report. (Reference to The Merrymen hit- Feeling hot hot hot). Inflation hitting a 30-year high was music to gold traders’ ears.  The way the gold trade is unfolding is looking mostly bullish. The labor market recovery will likely take longer than a few months for the Fed to say mission accomplished on maximum employment and pricing pressures will continue to trigger inflation-hedges into bullion.  If the Fed makes a policy mistake and has to quickly hike rates and send the economy into a recession, that should be an environment where gold outperforms equities.

Gold burst through the USD 1840 level and now faces tentative resistance at the USD 1900 level. Gold momentum should remain in place if real yields continue to decline.

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