Crude higher, gold steady

Crude gains ground

Crude prices benefited from the broader risk-on rally and held onto gains after the monthly OPEC report showed a weaker demand outlook in the first half of the year due to Europe’s restrictive measures to control COVID-19.  Energy market traders are still expecting a tight oil market as OPEC+ will only raise output once the recovery in oil demand is clear.

COVID variants remain a big risk to the crude demand outlook and that will support a consolidation period for oil prices.  Europe is the big drag for the demand side and that won’t dramatically improve until more COVID vaccines become readily available.  Europe bet big on AstraZeneca and that COVID vaccine has not had a smooth ride and is somewhat derailing confidence in getting vaccinated.

WTI crude seems poised to settle around the low-to-mid-USD60s for the rest of the month.

Gold

Gold’s lockstep behavior with Treasuries continues.  The overnight selloff in Treasuries that initially gave gold a boost has been undone.  Gold’s turnaround Tuesday rebound has lost some of its momentum but some of that is attributed to profit-taking ahead and nervousness ahead of a pivotal Treasury auction later today.  So far Treasury auctions have been ok, but if the upcoming 30-year bond auction has anemic demand, Treasury yields could jump and send gold prices sharply lower.

Gold should see some support at the USD1,700 level, but if that breaks metal traders might look for a retest of the Monday low before scaling back in.

Gold has still yet to attract ETF demand and that is concerning many bullion investors.  Gold traders don’t want to focus so much on Biden’s USD1.9 trillion COVID relief bill but more so on the move with real yields.  If Treasury yields enter a period of consolidation, that should be positive for gold prices.

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