Commodities and Cryptos: Oil rallies after OPEC+ agrees on more production, Gold rebounds, Bitcoin steady

Oil

Crude prices are rising again as OPEC+ grows more confident that the global crude demand outlook will only take a limited hit from the omicron variant.  The plan to gradually return production can move forward as OPEC+ anticipates a tighter market in the first quarter.  When you factor in that many countries are struggling to hit their quotas, even Russia, the oil market should expect this lack of capacity will keep prices heading higher throughout the year.

WTI crude is back above many key technical levels (all the major SMAs and the July 6^th high) and bullish momentum could support another run towards the $80 level.

Gold

Gold prices have quickly recovered roughly half of their New Year’s Day losses as investors try to figure out if Wall Street got a little too aggressive in pricing in Fed rate hikes for this year.  COVID cases are expected to continue to surge until we get past the post-holiday surge and that should likely put a cap over the short-term surge in Treasury yields.  The US economy is still strong and while the path for Treasury yields will be higher, gold will benefit from a weakening dollar as Europe and large parts of Asia will outperform this year.

Gold should trade around the $1800 to $1830 range until the December nonfarm payroll report, which could show labor market recovery continued despite omicron.  Even with rising expectations that Treasury yields still can go much higher, the US could return to normal 2% a lot sooner than people are expecting and that means investors will start to worry that Fed policy could quickly become restrictive. Gold should have a strong year once financial markets have a better handle on when the Fed reduces their bond holdings.  Gold will shine in 2022 even with three Fed rate hikes being priced in, as the 800-pound gorilla in the room remains how will they go about reducing their $9 trillion balance sheet.

Bitcoin

Bitcoin volatility has disappeared.  For a market that trades 24/7, Bitcoin hasn’t really done much when compared to most other asset classes.  Bitcoin did not stand a chance of breaking the $50,000 mark at the end of last year as $6.1 billion options expired, but the lack of a bump in the New Year is somewhat disappointing. Bitcoin is not getting any institutional love as much of Wall Street is focused on repositioning their equity portfolios.  The bull case remains for Bitcoin, but it will be a much harder year as many traders will also focus on altcoins.

It could get ugly for Bitcoin if the $45,000 level breaks, as buyers might await a test of the psychological $40,000 level before scaling back in.

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