Oil rally set to continue, gold eases

Oil up 10% in three weeks

Oil prices are edging quietly higher, extending gains from the previous session. Both benchmarks are on track to book gains of around 1.0% this week, the third straight weekly rise. The improving demand outlook, amid successful vaccine programmes, and rising consumption as economies reopen, has boosted oil prices by 10% over the past three weeks.

Goldman Sachs expects oil prices to reach USD80.00 a barrel this summer, and that is looking like a very real possibility.

News that Saudi Arabia has unwound its voluntary production cuts has been shrugged off. The oil market clearly believes that the demand side of the equation can absorb the additional supply re-entering the market.

Gasoline inventories earlier in the week were disappointing, particularly as the US summer driving season kicks off. However, road traffic data points to traffic levels in North America and most of Europe returning to pre-pandemic levels, which is helping to keep the tone bullish.

Covid-19 aside, the one real headwind comes from the potential revival of the 2015 Iran nuclear deal and Iranian oil flooding back to the market. However, this risk is proving to a slow burner.

Gold eases on rebounding USD 

Gold jumped higher in the previous session, touching USD1900.00an ounce before easing a few dollars lower. Gold, which is often considered a hedge against inflation, fell initially on surging US inflation, but found support from falling US Treasury yields. Yields falling on rising inflation appears counter initiative, but as inflation is surging interest rate expectations are not, which is a sweet spot for gold.

What more could gold want? Rising inflation and a Federal Reserve willing to sit on its hands? Whilst gold is edging lower on a stronger US dollar, a move over USD1900.00 an ounce is not out of the question. That opens the door for a move towards resistance at USD1916.00. Failure to reclaim the USD1900.00 level could see the price ease back towards the USD1890.00 an ounce comfort zone.

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