Oil pares back, gold gains ground

Stock markets are looking a little flat on Tuesday after a strong bounceback rally over the last week or so.

It’s been an impressive recovery after the wobble mid-January amid the Reddit rebellion and with Wall Street back in record territory, we may be seeing a little profit-taking. There’s certainly more optimism around now, whether that be around the US stimulus package, sharp drop in Covid cases and fatalities, or the vaccine rollout.

Earnings season has also been promising under the circumstances and offers hope of a strong recovery this year. This is further compounded by Janet Yellen’s assertion that the country could be back to full employment next year; a staggering achievement for the US given the hammer blow of the pandemic over the last 12 months.

This week is a little quieter on the major data and event front, with earnings season even past its peak.

Oil pares gains but has strong momentum

Oil prices are also paring back a little today after Brent breached USD60 for the first time since the start of the pandemic on Monday. There still appears to be plenty of momentum behind the move, with optimism around the vaccine rollout and reopening in the US and Europe driving the latest rally.

Previously it was OPEC+ – well, Saudi Arabia – that gave the rally new life as they responded to the latest virus setbacks with another cut in January. But with the outlook suddenly looking more promising despite new variants threatening to slow the reopening, oil prices are on the rise again. The colder winter has also been supportive on the demand side.

Gold higher for a third day

Gold is enjoying a third day of gains, buoyed by a pullback in the US dollar index which moved back below 91 on Monday. The greenback still looks in a healthy position despite the setback since the poor jobs report on Friday and only a move below 90 would cast serious doubt on its recovery.

So while gold is enjoying some reprieve, I wouldn’t get too excited about its recovery just yet. The path below still looks like the one of least resistance at this stage. Should it break above USD1,875, it could get a lot more interesting, with USD1,900 then being a massive test for the yellow metal.

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

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