Oil looks to OPEC, gold tests 1700

Last week’s volatility has given way to a calmer mood in the oil market as investors tread water ahead of the OPEC meeting. With the container vessel dislodged from the Suez Canal and traffic resuming along one of the world’s busiest trade routes, attention is shifting squarely to OPEC’s supply policy.

Last week’s swings revealed that the oil market is still extremely vulnerable to both bullish and bearish stimulus, which will only be resolved through a sustained increase in demand. This, along with rising crude inventories across 5 weeks points to OPEC keeping production cuts in place.

With Covid cases rising in Europe and other key developing markets, such as India and Brazil, a sustained increase in demand is still some distance away.

The growing expectation that OPEC will hold steady in April is underpinning the oil price. We could see WTI crude sit comfortably above USD60 this week ahead of the decision.

Gold is unloved amid higher yields

Gold is extending losses from the previous session. The precious metal tumbled over 1% on Monday as US treasury yields pushed higher, reaching a peak of 1.74% overnight and the US dollar strengthened.

The prospect of a strong economic recovery in the US is boosting the US dollar. A combination of an accelerating vaccine rollout programme and the prospect of an additional USD3 trillion – USD4 trillion in infrastructure spending from the Biden administration is fueling optimism that the US economy will bounce back much faster than initially expected.

We have seen signs of the reflation trade questioning the Fed’s ability to keep interest rates at current ultra-low levels. The fresh leg high in yields is hitting demand for non-yielding gold hard.

Gold is currently testing a key support at USD1700; a breakthrough at this level could see the sellers gain momentum and target a multi-month low of USD1680.

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