Oil vulnerable, gold shines

Oil

Hold your horses on that oil price rally.  Crude prices have been rising ever since Iran Foreign Ministry Spokesman Saeed Khatibzadeh stated differences remain around sequencing and verification.  On Friday, energy markets headed into the weekend with some confidence that Iran and world powers would be able to revive the 2015 nuclear agreement.

Now that the Iranian monitoring pact with the IAEA has officially been extended, this time for a month and not three, pressure is on to get something done over the next few weeks.

Iran is the biggest wild card for the oil market.  Iranian supply is the biggest question market and that will be determined if the US piecemeals the reduction of sanctions or provides an opportunity to have all of them removed.  The energy market has priced in an extra 500,000 bpd of crude from Iran later this summer, but if most sanctions are taken off, an additional 1,000,000 bpd hitting the market by the end of the year.

WTI crude could be vulnerable to a decent pullback if Iran looks to be poised to have the majority of sanctions removed.

Gold/FX

Gold outlook is bullish

Gold continues to rally as Treasury yields remain anchored and as the dollar hovers near 3-month lows.  Fed speak continues to support the idea that inflation in the US will be transitory and that is good enough to keep short-term bullish momentum in place for gold.  Fed’s Brainard highlighted that she expects price pressures from bottlenecks and reopening to subside over time.  Fed’s Bullard reiterated that he expects to see more inflation but added that it will mostly be temporary.  Fed’s Bostic noted that price increases are happening because demand is responding quicker than supply.

Wall Street is on board with the Fed that inflation could be transitory and that should keep bullion investors happy.  Gold continues to face resistance from the USD1,900 level, so if the dollar stabilizes over the next couple of sessions, bullion might remain steady.  Gold’s medium and long-term outlooks are still bullish primarily on the Fed’s ultra-accommodative stance, rising physical demand from China, steady central bank buying and improved ETF interest, and loss of confidence in Bitcoin as an inflation hedge.

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