Gold rallies as debt deal progress sends Treasury yields lower

• Russian oil shipments weaken but still well above last year’s average
• Gold finds support after tumbling towards Mid-March low
• Bitcoin hits two-week high but still appears to be firmly anchored

Oil

Oil is on the ropes as upcoming week will likely contain further confirmations that China’s recovery is struggling, the US labor market is cooling, the Fed will likely deliver more tightening that will eventually cripple the economy later this year, and as everyone waits to see if the debt deal can make it to the President’s desk.

It is hard to get excited about jumping back into oil as we have an upcoming OPEC+ meeting that seems poised to be just a review of production levels, but no announcement of further cuts.  Tonight’s Chinese data should confirm views that the recovery has stalled and that the economy will need more stimulus.

Gold

Gold is getting its groove back as debt deal optimism has June maturity T-bill yields returning to earth. Last week, the June 1^st Treasury bill was yielding around 7% and now it has tumbled back to 4.51%. Gold can be a safe-haven for a lackluster China recovery and as the US works its way towards a recession.  A complete collapse in confidence that comes with a US default would trigger a de-risking moment that would take down everything including gold.

Gold could start stabilizing here even as the market becomes more convinced that the Fed has one more rate hike in them.  If the economy proves to be too resilient and the risk of two hikes grows, that could limit gold’s gains.

Bitcoin

Bitcoin is steady as investors await to see how the cryptoverse will react to the tightening of conditions once the debt deal gets passed and a trillion dollars worth of Treasury bills gets issued by the Treasury.  Typically, when governments issue debt that takes their debt to GDP at uncomfortable levels, that should be good news for crypto, but too many crypto companies might deal with difficult financing options over the next year.

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