Oil rises, gold rally continues

Oil rises on re-opening optimism

Re-opening optimism is boosting oil prices, which now trade at around two-year highs. Western economies such as the US and the UK are easing lockdown restrictions, driving fuel demand and overshadowing lingering demand concerns in parts of Asia as Covid cases rise.

The oil market has been in a tug of war over Western re-opening optimism and rising Covid cases in Asia. With prices trading at almost two-year highs, it would appear the glass is half full in the oil markets right now.

However, there is light at the end of the Covid tunnel, raising demand outlook expectations. Restrictions on international travel left a jet-sized hole in fuel demand, but this is starting to turn a corner. US airports are seeing the highest number of passengers since the beginning of Covid. Moreover, further restrictions in Europe have eased, with travel expected to start ramping up over the coming weeks.

Covid cases in India and Japan continue to pose a risk to the demand side of the equation. India has seen domestic sales of fuel and gasoline by state refiners decline 20%. These concerns could act as a cap on gains.

Gold extends strong run higher

Gold continues its impressive run, trading higher for a fifth straight session. Even after 1% gains in the previous session, follow-through buying is keeping the price elevated. The weaker US dollar, easing treasury yields and a dovish Fed have created a sweet spot for gold. The precious metal has gained more than 5% so far this month and 1.5% so far this week.

Following weaker US retail sales, the markets believe the Fed is more likely to keep rates low for longer. Zero growth in US consumer spending in April dampened rising inflation fears. The Dallas Fed Robert Kaplan reassured the market further, saying any rate hike is not likely until next year.

The economic calendar is light, so attention will now turn to the FOMC minutes due to be released tomorrow.

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

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