Oil and gold pare early gains, bitcoin rebounds

Oil retreats on Merk, OPEC+

Crude prices pared early gains from a double dose of bad news on the COVID front. Merck’s coronavirus vaccine failure and Dr. Fauci’s concern over second COVID vaccine doses were bad news for the short-term crude demand outlook.  Earlier, oil prices were boosted on commitments from Russia and Iraq to reduce output over the next couple of months to make up for their non-compliance with the OPEC+ production cut pledge.  Iraq will lower production in both January and February, while Russia is eyeing a 20% reduction of their seaborne exports in February.

WTI crude remains trapped in the low-USD 50s as short-term headaches to the demand outlook are offset by optimism the second half will be very strong.  Crude does not want to break as air travel and business activity will come roaring back, but it seems vaccine delays may only push things back a couple of months.

Gold

Gold prices initially climbed higher ahead of what is expected to be another dovish confirmation Fed policy meeting later in the week and as COVID vaccine and lockdown news bolster the prospects of more global fiscal and monetary stimulus.  Gold should remain bid as short-term risks to the outlook are growing; vaccine delays on syringe shortages, Europe is likely to see more lockdown announcements, and ahead of the biggest earnings season week that is expected to see risk appetite supported by mega-cap tech earnings.

Ahead of the Fed’s two-day policy meeting, gold should settle between the USD1,850 and USD1,900 range.  Gold’s outlook is still bullish mainly because of dovish commitments from Fed Chair Powell and Treasury Secretary nominees Yellen.  The next couple of weeks are big for fiscal negotiations and that should be critical for gold’s short-term outlook.

Gold pared most of its early advance after the dollar mounted another rally following a steady stream of negative European news that sent the euro sharply lower.

Bitcoin

Bitcoin is rising as the “Yolo” generation continues to buy on any incrementally positive crypto news.  Expectations are high that the Treasury Secretary nominee will take her time with the regulation on cryptocurrencies and that ultimately that the first wave of changes would likely hurt the smaller coins first.  Bitcoin is now comfortably above USD34,000 and seems poised to continue to consolidate between the USD30,000 and USD40,000 range.

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