Oil bounces back, gold falls below USD 1800

Oil rebounds after warning shot from consuming countries

Oil prices are recovering despite the coordinated efforts of the US, China, India, Japan, South Korea and the UK to release oil reserves and rebalance the market to ease prices. The move wasn’t the game-changer that it could have been and only provides short-lived support. Instead it appeared to serve more as a warning to OPEC+ to not ignore consuming countries.

These countries have vast reserves but they are intended for emergencies, not to start price wars with producers every time they get a little high. The question now is how OPEC+ will respond as the group can easily wipe out any benefits of the releases by slowing their planned monthly output increases. This isn’t what the White House wants which may explain why the estimates look a little on the low end.

The markets are rebounding because what was announced didn’t surpass expectations so markets were more than positioned for it. If OPEC+ responds, we could see WTI back above USD 80 in no time. The bigger downside risk for crude is lockdowns and if other European countries will follow Austria’s lead.

Gold smashed as US rate hikes priced in

Gold has been pummeled over the last couple of days as real yields have spiked in the aftermath of Jerome Powell’s renomination, alleviating some inflation concerns. Markets are now pricing in a rate hike in June, maybe earlier, and up to three next year. We could see those expectations backed up by the Fed dot plot in a few weeks.

The yellow metal has broken below USD 1,800, a major psychological blow, and could come under further pressure after seeing some support around USD 1,780. The next big level below is USD 1,760 but momentum is not gold’s friend at the moment.

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