Oil and Gold rebound, bitcoin back above US 35k

Crude prices are following the broader move into risky assets today.  It seems energy traders are just looking for a reason to buy as the macro outlook seems to be very positive once we get past these next few months.  Earlier, oil was boosted on a weaker dollar, but those declines have been kept in check.

Surprisingly, oil did not react much to Petro-Logistics report that showed OPEC+ cut compliance fell to 75% in December, the lowest levels since the group of producers agreed-upon production cuts in May.  Even Saudi compliance dipped, down 10ppts to 92%, while non-OPEC fell 8ppts to 64%.  This report obviously reflects positioning before last week’s tense meeting which delivered the Saudi surprise cut of 1 million bpd beyond its share of OPEC+ cuts in February and March.

Given the rising COVID risks and potential lockdowns, WTI crude should struggle to rise beyond the low-to-mid-USD50s. Oil prices seemed unfazed after Germany warned that it could need another eight to ten weeks of lockdowns.

Has gold bottomed out?

Gold’s bottom could be in place as prices are rebounding despite rising Treasury yields.  Dragging gold has been a dollar rebound that was supported by the benchmark 10-year Treasury yield, which is over 1.15%, steadily rising from 0.95% over the past five trading sessions.  Gold was looking very vulnerable as excessive technical selling tentatively breached critical support levels.

Gold should see steady demand, however, as global COVID fears remain, a slow rollout of vaccines, and on expectations that the Biden administration will be able to deliver more fiscal support as the economic data deteriorates.  Gold should see some tentative resistance around the USD1870 level given today’s light volumes.

Bitcoin is stabilizing alongside other risky assets as the latest plunge has seemed to run its course.  In the short-term, bitcoin will likely take its queue from global equities and whether the promise of more stimulus will pump up financial markets.

The over 20% plunge has scared away some retail investors, but institutional players were prepared for Bitcoin’s latest volatility.  Bitcoin could make an attempt back above the USD40,000 level if the dollar rebound takes longer to formulate.  An overcrowded bearish dollar trade at the start of the year probably still has to be unwound, so bitcoin might not be in the clear just yet.

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