Cryptos and Commodities: Oil extends gains post EIA report, Gold weaker, Bitcoin higher

Oil Crude prices continued to climb higher after the EIA oil inventory report showed a bigger-than-expected draw.  US stockpiles fell 6.42 million barrels, more than the consensus estimate of 2.74 million drop or the yesterday’s API decline of 5.44 million barrels.  US production is crawling back, up 100,000 barrels per day to 10.1 million bpd.  Gasoline demand also dropped, but the aftermath of Ida and bad weather and beginning of school likely were behind that weakness. 

Risks to the upside for crude prices are not going away.  Oil’s rally is nowhere near over as both demand and supply drivers are still mostly bullish: further delays in making progress with the Iran nuclear deal, a cold winter, and further production disruptions from a very active hurricane season. 

It seems like it is only a matter of time before WTI crude makes a run towards the summer highs. 

Gold

Gold prices dropped after Treasury yields rallied following a surprisingly strong Empire State survey that growth might not be as weak as initially anticipated and suggests pricing pressures could remain near record highs.  In addition to solid US economic data, Canadian CPI increased 4.1% on a year-over-year basis in August, the fastest pace since March 2003, which was a big increase from the 3.7% gain in July. 

Earlier in Europe, UK inflation almost hit a decade high, which has some market participants anticipating a BOE rate hike in the first quarter.  As more advance economies see their central banks grow more concerned with inflation, the global punchbowl of stimulus will get a little smaller.  Gold’s bread and butter has been globally easy monetary policies and that is about to moderate, but over the next couple of quarters it could transition to an inflation hedge, but the timing of that will be tricky. 

For gold to avoid a selloff it needs to capture and stay above the $1800 level.  Gold first needs to see lower nominal Treasury yields before investors willingly come back. 

Bitcoin

Bitcoin is rallying as investors digest a plethora of commentary from SEC Gensler.  Gensler is working on rules to oversee the cryptocurrency market, but expectations are mostly optimistic that the protections that will be put in place won’t cripple innovation and completely disrupt how the market operates. 

Fidelity reportedly urged the SEC to approve physically backed Bitcoin ETF in a meeting last week, which served as a remind that Wall Street is completely behind the world’s largest crypto.  Crypto interest is global and progress in Europe is also key to the next leg higher for Bitcoin.  The Eurex, a derivatives exchange owned by Deutsche Boerse, had a big breakthrough launching their Bitcoin ETN futures offering. 

Bitcoin is still in consolidation mode and will likely continue to consolidate around the  $45,000 to $50,000 level.

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