Oil falls below 60, gold eyes Powell

Oil’s bearish momentum picks up

Crude has crashed its way through 60.00 as it struggles to find its feet again following last week’s decline. After four months of strong gains, oil has hit a wall. Rising Covid cases in Europe and tighter lockdown restrictions are reawakening future demand concerns. Add into the picture the UK government’s insistence that holidays abroad are still firmly off bounds and a jet-sized hole in demand remains stubbornly in place.

Downward momentum could well pick up following last week’s sell-off. While countries are set to reopen economies in the coming months, the oil rally might have gotten ahead of itself. Any rise in demand from here is likely to be matched by rising supply as OPEC+ is set to ease production cuts and US shale output ramps up.

According to a Reuters report, India’s crude imports for February fell 18.30% from a year ago, suggesting an economic slowdown that Covid-19 will exacerbate if cases continue spiralling. India is the the world’s third-largest oil importer. China demand also appears to be less than anticipated, perhaps due to maintenance schedules with the worst of winter behind them.

Gold looks to Powell & Yellen

While gold trades lower, it is trading towards the upper end of its daily range as investors battle the US dollar’s rising strength with falling treasury yields.

US-dollar-denominated, non-yielding gold is particularly sensitive to the turning tides in the bond market and the value of the US dollar.

While the US dollar is finding support due to its safe-haven status, in risk-off trade, US bond yields have also eased back considerably to 1.64%, giving gold bulls some much-needed breathing space. Attention will now turn to Jerome Powell and Janet Yellen’s testimony for direction. Further insistence of an accommodative stance could see yields easer further and push gold higher.

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