Oil higher, gold rallies

Oil prices rise on higher demand

Crude prices continue to push higher as the demand outlook is starting to improve for Europe now that they have their hands-on vaccination supplies and as cases fall across some countries.  Germany set a new COVID vaccination record, while Italy and France are seeing cases decline.  Sweden is suffering the highest rate of new cases and will likely see recommended personal lockdowns.  The situation in India is out of control as big cities are forced to shut down.  The news across Europe and Asia is not all positive, but seems mostly to be headed in the right direction.

Talks between the US and Iran should intensify and ultimately reestablish formal negotiations to bring back the landmark nuclear deal.  Iran’s crude production is exempt from OPEC+ quotas but has been steadily rising on Chinese demand.

WTI crude is also benefitting from a weaker dollar outlook that seems to be ignoring recent correlations with phenomenal US economic data.  The supply-side drivers seem fairly bullish as both the US and OPEC+ seem poised for gradual increases with output that won’t outpace roaring summer demand.

Gold

It’s been hard to be bullish gold since last month.  Given the US growth exceptionalism that has been priced in, it seemed that non-interest-bearing gold was in trouble as Treasury yields seemed poised to keep on climbing higher.  Today’s robust US economic data did something very different.  Treasury yields tumbled and gold prices jumped after a massive retail sales print and pandemic low reading for jobless claims.  Gold demand has been improving with central banks but much of Wall Street has been critical. Gold has now broken above its tight consolidating range and could see prices continue to rally towards the USD1,800 level.

The risks to the outlook are growing and that should bolster the need for holding safe-haven assets such as gold. The PBOC is tightening liquidity and this story could continue to weigh down on Chinese equities.  The Biden administration is now starting to deal with Russia and China and the risks of short-term disruptions to the outlook might not be as minimal as markets are expecting.  The inflation debate will unnerve some investors.  The path for Biden’s infrastructure spending will be complicated as public support is very mixed.

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