Oil rises, gold slumps

Energy

Crude prices were supported after rising geopolitical tensions kept the short-term production somewhat vulnerable and as Western Europe starts to see COVID cases declining.  Energy markets are trying to figure out how talks between Washington and Tehran unfold after Iran’s nuclear facility was attacked.  Tehran’s enrichment program was the big chip at the negotiating table and if that capability was damaged, that could hurt their leverage.  The head of Iran’s Atomic Energy Organization stated uranium enrichment at the Natanz facility continues.

Saudi Aramco facilities were targeted by Yemen’s Houthis with 17 drones and two ballistic missiles.  Tensions remain elevated in the region but have yet to yield any disruptions to output.

If the crude demand outlook continues to look strong in the US and improving across Europe, oil prices could resume a steady climb higher.

Gold

Rising Treasury yields drove demand away from gold.  The unfolding inflation debate will heat up and a steady rise in Treasury yields could prove difficult for the gold market.  Gold traders are waiting to see if the 1.75% cap put in place for the 10-year Treasury can hold.  If Western Europe continues to make progress in the fight against COVID, the reopening trade should keep the dollar vulnerable and support gold prices.   Inflation risks are growing and more noticeably with emerging markets and that should keep central bank buying of gold strong going forward.

Gold volatility is slowing down and while the bullish case has some holes in it, the outlook should still be for much higher prices later this year.  Gold has massive support at the USD1700 level and if this holds over the next couple of days, prices should grind higher towards USD1800 over the coming weeks.

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