Oil prices dip, gold rally pauses

Oil pullback losing momentum

Oil prices are falling again on Monday, although the pullback does appear to be losing momentum as it approaches the lows from a couple of weeks ago. The correction has been partially attributed to the prospect of US President Joe Biden releasing oil from the SPR. While I’m sure Biden will be happy with this result, I’m not convinced it’s a threat he wants to follow through on. Not at these levels. It’s win-win in that sense. For now, at least.

Ultimately prices remain well supported as there’s little chance of OPEC+ raising output faster, especially if – as UAE energy minister Suhail al-Mazrouei claimed today – the group expects the market to return to surplus in the first quarter of 2022. With US shale not the force it was prior to the pandemic as focus shifted to debt and shareholder repayments this year, we may have to get used to prices at these elevated levels.

Is gold’s winning streak coming to an end?

Gold prices are pulling back a little at the start of the week, threatening to bring an end to the seven-day winning streak for the yellow metal. It’s been quite a run for gold, which has soared as inflation indicators have continued to rise and become more widespread. This, in turn, has forced traders to price in more rate hikes even as central banks push back against it.

Gold has become popular despite higher yields and a stronger dollar, as inflation-adjusted yields remain at their lows. It’s also been seeing some love for its role as an inflation hedge, as we saw in the aftermath of the US CPI data last week. If policymakers continue to stick to the transitory line, gold could continue to see support. Of course, the dot plot next month may be a big giveaway on that front.

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