Oil higher, gold’s woes

Oil rally could be on fumes

Thanks to COVID vaccine success, it seems the reopening of the global economy will happen a lot sooner and everyone is rushing to upgrade their crude demand outlooks.  Last week’s deep freeze is proving to have a greater impact as producers struggle to fix leaks and burst pipes, which should keep production somewhat soft over the next month.  With the US slowly getting their production back to normal and with a low chance that OPEC+ will deliver a repeat of what happened last year between the Russian and Saudis, oil prices seem poised to consolidate higher.

The best-case scenario is unfolding for the global oil demand recovery but the crude price rally is reaching exhaustion, which should mean that WTI crude should struggle to break the USD65 level this week.

Gold

The faster the global bond yields rise, the sharper the fall is for gold.  The dollar is down today and weakness in gold is showing no signs of easing.  The precious metal is having a rough 2021 and the only thing that can right the ship is if central banks thwart the trajectory of bond yields.  The Fed will have plenty of opportunities to stem surging Treasury yields, but for now, it seems they can be a little more patient.

At what point does skyrocketing bond yields threaten financial stability? It seems we may have to wait a while longer to find out.  If financial conditions breakdown over the next couple of weeks, that could trigger a strong move by the Fed.

The surge in Treasury yields mostly likely can’t keep this pace up so gold should start to stabilize soon.  If the bond selloff continues and gold does break critical support at the USD1750 level, technical selling could see this get another 5% uglier.

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