Oil lower, gold waits for Fed

Oil prices dip

Crude prices drifted lower as the dollar strengthened and as the latest restrictive measures in China will deliver a huge hit with Lunar New Year travel.  China’s crude demand is the backbone to the current recovery with prices, so any deeper restrictions should provide some selling pressure for Brent and WTI crude.

OPEC Secretary-General Barkindo’s bullish comments at Iran’s IPEC conference had little impact on oil prices.  Barkindo reminded energy traders that the worst is over for the global oil market and that oil investment fell by 30% in 2020.  The most impactful comment he delivered was that virus rates will continue to drag on the recovery.  Barkindo stuck to the script and did not offer any new insights into the demand outlook.

The big story in the energy space was S&P Global Ratings’ decision to put most of the major oil companies, such as Exxon and Royal Dutch Shell, on negative watch.  The rating agencies are always late to the game and this warning seems long overdue.  President Biden’s clean energy initiative was well telegraphed and will likely see him deliver most of his promises via executive order.  Margins should improve and lack of investment will provide some opportunities for more drilling this year.

Gold waiting for Fed cue

Gold traders are in wait-and-see mode until the Fed can signal that they are nowhere near ready to slow asset purchases.  The next 24-hours could be very boring for gold traders if the precious metal is stuck between USD1845 and USD1865.  Gold softened slightly in early trade after positive news from Regeneron’s antibody cocktail that could be used as a passive COVID vaccine.

The current short-term situation is pretty bleak for Europe and virus variants should keep the demand stable for safe-havens such as gold.  In order for gold to reassert its longer-term bullish trend, it needs the Fed to punt taper talk deep into 2022 and can’t have a complete unwind of safe-haven bets after J&J’s delivers their late-stage COVID vaccine trial data.  After this week’s Fed fireworks and massive tech earnings, risk appetite should have enough of a catalyst to send gold either to USD1800 or USD1900.

Bitcoin volatility eases

A new wave of retail traders may have decided to put a pause on their crypto trades and jump on the adventures of GameStop gambling.  Bitcoin volatility has somewhat eased and it seems all the fundamental stories keep on getting recycled.  Bitcoin is not rallying on recycled news of ballooning deficits and inflationary pressures will drive traders to seek refuge from fiat currencies, or that Treasury Secretary Yellen and SEC head nominee Gensler are likely to be crypto-friendly early in their terms.

Bitcoin did get hit with a wave of bad press at the end of last week when South Africa’s Direct Selling Association of South Africa (DSA) asked the African Union (AU) to initiate a continent-wide effort to stamp out Ponzi schemes that could target cryptos.  Bloomberg reported today that South Africa’s finance-industry regulator would like to be able to fully prosecute perpetrators of fraud and oversee dealing in cryptocurrencies.  The regulatory headaches for bitcoin have not gone away, but for now no longer seem to send prices sharply lower.

Bitcoin seems poised to consolidate a little more, but if the Fed is not dovish enough and the dollar rebounds, the USD30,000 level could easily break.

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