Oil gains ground, gold slips

Oil prices rise as Big Freeze hits US output

Oil prices are climbing once more, with the cold snap in Texas the latest bullish catalyst for crude prices. With oil wells and refineries offline, we could be facing a significant shortfall for a number of days, further tightening supply at a time when it has already been restricted and demand is expected to return.

This is only a short-term glitch though which is why we’re not seeing a more significant impact on oil prices, which are starting to show signs of being overbought. This shouldn’t come as a major shock after a 70% rally since early November. A lot of optimism around the economic recovery is now priced in so the market may be primed for a minor correction.

Brent and WTI above USD60 and vaccines being rapidly rolled out will make the next phase of the production agreements all the more interesting. At these levels, Russia will be more anxious than ever about the recovery in US shale and Saudi Arabia surely won’t want another repeat of the January meeting when it effectively did all the heavy lifting on its own. It should set up an interesting face-off throughout the spring and summer months.

Gold slides as US dollar jumps on higher yields

The dollar rebounded strongly once again on Tuesday after coming under early pressure and it’s building on that momentum again today. Higher yields are making investors a little nervous and are generally positive for the dollar. A move back above 91 in the dollar index could be a bullish signal, being the neckline of the inverse head and shoulders that was broken earlier this month.

This is naturally a negative development for gold which is once against testing lows from two weeks ago. A break of USD1,785 will turn attention back to the late November lows around USD1,765 and this may not put up too much of a fight. The dollar appears to be generating momentum and rising yields are further fueling it. A move back towards USD1,700 may be on the cards for gold.

The death cross-50 day SMA moving below the 200 day SMA isn’t an ideal development for gold either. The last time it was below was more than two years ago.

Microstrategy gambles on more bitcoin

Bitcoin has broken USD50,000 after a number of days of falling just short – a lifetime in the world of crypto – and it seems it’s finding a fresh new wave of upside momentum. It’s not exactly soaring, as it has with other major technical breakouts but another 3% gain isn’t to be sniffed at.

The latest story of note in the space is MicroStrategy, buoyed by its previous foray into bitcoin, selling USD600m in convertible bonds to fund more purchases. It’s one thing using reserves to buy bitcoin – which is still a very questionable strategy that may pay off as gambles can do – but to do so by raising funds? That’s extremely worrying, especially if more companies follow.

Suddenly it feels like 2017 again when everyone wanted blockchain in their name in order to get a price boost and ride the crypto wave. The most ridiculous example I remember being Long Island Iced Tea or “Long Blockchain”. If companies’ fundamentals are going to become closely tied to movements in bitcoin because they’ve suddenly become speculators on the side, we’re going to be in bubble territory before you know it. Good luck.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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