Commodities and Cryptos: Oil steady, Gold survives hot Core PCE reading, Bitcoin lower

Oil

Crude prices are broadly following the risk-on theme on Wall Street.  A quiet day on the energy front saw little impact over a very quick grounding of a ship in the Suez Canal and after Moody’s noted oil majors could have increased credit risk as ESG investments will lift capital costs. 

Energy markets remain fixated on both the upcoming OPEC+ ministerial meeting and likely revival of the Iran nuclear deal.  OPEC+ will likely move forward with the June increase of 700k bpd but may decide to hold off a July supply increase.  The crude demand recovery warrants an increase in July, but the alliance might choose to have a more cautious approach. 

Uncertainty over Iranian output is complicating the upcoming OPEC+ meeting.  Expectations are high that the nuclear deal will get wrapped up before the Iranian presidential elections on June 18th.  Both sides are motivated, but will drag this out a little so they can make it look like they got the better end of the deal. Depending on how much Iranian crude returns and how quickly, crude demand recovery could be in jeopardy.  Brent could swing by $10 in either direction, but energy traders are still optimistic the market will stay balanced.

Gold

Gold prices whipped around after another round inflation readings came in slightly hotter-than-expected.  The PCE core deflator monthly and annual readings both came in above consensus estimates, which spiked Treasury yields and sent gold initially lower. 

Bullion had a good week and while the rally appears to be taking a break, it seems it might only be a temporary one.  Gold’s fundamentals are still improving as central bank buying continues to improve, unprecedented monetary and fiscal stimulus efforts are still elevated, and as some traders lose confidence with cryptocurrencies.  

The true test for gold will be after the next couple of months of hot inflation reports and if we have some surprising better-than-expected nonfarm payroll reports.  If gold can hold its own against rising Treasury yields, the path to record highs could be inthe cards for later this year.  For now, Treasury yields have been depressed,but the outlook by the end of the year is still for much higher yields.

Bitcoin The month of May has been disastrous for Bitcoin.  After rallying to almost $65,000, it all came crashing after Elon Musk announced Tesla would no longer accept bitcoin as payment and revived ESG concerns, China seemed more serious with their latest banning of Bitcoin, and as panic-selling hit many of the new retail traders.  The institutional picture is mixed, with some remaining confident over the long-term.

Right now, cryptocurrency traders are still unsure on where the bottom could be for Bitcoin and are sensitive to sell on any headline.  Weakness overnight came from BOJ Governor Kuroda’s downbeat comments on Bitcoin, but they should not have surprised anyone.  Bitcoin is legal tender in Japan and has seen increases in Bitcoin transactions.  Japan has been cracking down on crypto scandals and making sure all exchanges obtain the appropriate licenses.    

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