Commodities update: oil surges, gold volatile

Oil climbs on Pfizer

Crude prices are surging in anticipation of the FDA’s potential approval of Pfizer’s vaccine, as Asia’s economic recovery is making Chinese and Indian refiners acquire more oil, and on rising geopolitical risks in the Middle East after Iraq had two wells hit.  It seems the impending lockdowns across the US and the potential hit to crude demand is being compensated by improving trends across Brazil, the UK, and most of Asia.

Brent crude recaptured the USD50 level for the first time since March and that might just be the beginning.   The crude demand outlook over the next few months is improving with the exception of the US.  The geopolitical risks in the Middle East appear to be elevated given the Trump administration’s efforts and that should prevent traders from focusing on the rising stockpiles in the US.

Gold shows volatility

Gold prices went on a rollercoaster ride after a surge in jobless claims boosted stimulus expectations, only for Senate Majority Leader McConnell to throw cold water on the bipartisan stimulus proposal.  No progress has been over the red lines despite what Pelosi and Mnuchin have been saying.  Fresh stimulus before the holidays was starting to get priced in for gold, so any disappointment over the next few days could trigger further selling pressure.

Jobless claims confirmed the labor market recovery has hit a wall as the pandemic rages on.  The COVID-19 death toll is producing some of the darkest days in American history.  Yesterday, the US saw 3,124 deaths, exceeding the number of deaths suffered in the 9/11 attacks.  The Thanksgiving surge could also be followed with a Christmas/Hanukkah surge that will keep large parts of the country in lockdown mode.  Gold should start seeing significant support as the punchbowl of stimulus will continue to grow over the short-term Covid pressures.  The ECB delivered and that act will be followed by fresh measures from the Fed next week. Gold’s longer-term bullish outlook remains, but December volatility will not go away anytime soon.  If the dollar doesn’t deliver a significant rebound, gold prices should see the USD1,800 level defended.

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