Oil retreats, gold falls

Brent crude slips below USD 70

A tight oil market saw crude prices jump after Yemen’s Houthi rebels launched ballistic missiles and drones at an Aramco oil facility in eastern Saudi Arabia on Sunday.  Despite no production being impacted, Brent surged to USD71.36 a barrel on Sunday night as the dollar initially weakened.  Energy traders quickly remembered the 2019 attacks on two of Saudi Arabia’s biggest crude oil production plants.  There is a lot of spare capacity in the oil market, so it would take a massive attack on a Saudi oil facility to warrant a significant move higher with oil prices.

Since November, oil prices have been on a tear as COVID vaccine success drove up crude demand expectations and now that OPEC+ has signaled they will wait to see demand pickup before increasing output collectively.  With Europe and emerging markets still in the early stages of their respective economic recoveries, higher oil prices could disrupt that, and that is not good for a key portion of the crude demand outlook.

Gold

Gold prices can’t shake off the strong rise in Treasury yields which is delivering dollar strength.  Gold’s fundamentals are a little ‘out of whack’ right now.  The US is about to finalize Biden’s massive USD1.9 trillion COVID relief bill and resume infrastructure spending talks and gold is resuming its freefall.  It seems gold can’t reassert any bullishness until the dollar rally is believed to be over.

Gold is still vulnerable as the short-term outlook still calls for US growth exceptionalism and that could keep the dollar strong over the next couple of weeks.  Eventually the move in the bond market will trigger a pushback from the Fed and that should be the all-clear sign for gold investors.  Gold’s medium-term outlook still calls for a significant rebound as central bank buying improves and as jewelry demand bounces back.  If gold continues to hold the USD1650 level, investors could start to scale back into the precious metal.

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