Oil slides, gold softer

Oil prices fall

Crude prices are lower as holes emerge in the short-term demand outlook and as EU leaders gather and try to figure out how to deal with spiraling energy prices and maintain efforts into transitioning to clean energy.  Oil seems like it could be vulnerable to some modest weakness as the reopening of the global economy has hit a road bump as many countries tighten lockdowns.  Russia is losing the battle against COVID and has introduced a weeklong office shutdown and made the decision for unvaccinated over-60 years old to stay at home for four months.  Latvia is struggling with the virus and is closing shops and bars for a month.

Despite all the moving parts for the demand outlook, the underinvestment in the oil industry has this market stuck in deficit for at least the next few quarters.  WTI crude may soften here but until energy traders know how cold this winter might be, most dips will likely be bought into.

Since the end of August, WTI crude has taken an escalator ride up to the USD mid-80s, which means it is ripe for a little profit-taking.

Gold

Gold appears stuck in “no man’s land”, battling rising yields on the short-end of the curve and as Fed members try to push back rate hike expectations.  Bullion continues to struggle to recapture the USD 1800 level, but given the recent move higher in Treasury yields, gold bulls should not be discouraged.

Dollar strength has been in place since June and that could be nearing an end as rate hike expectations may have gotten a bit too aggressive.  Gold should see some safe-haven flows as the short-term risks to the global economic recovery are growing as Evergrande contagion spreads, inflation is not letting up and as investors brace for a mini taper tantrum.

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