Oil down on demand, gold consolidates

Brent crude’s brief dip below USD 80 was short-lived on Thursday and prices were continuing to recover on the final trading day of the week until Austria announced its lockdown. Brent crude quickly reversed course and trades almost 2% lower on the day as it takes another run at USD80.

Oil has been declining over the last week as demand forecasts have been pared back, OPEC and the IEA have warned of oversupply in the coming months and the US has attempted to coordinate an SPR release with China and others.

The market still remains fundamentally in a good position but lockdowns are now an obvious risk to this if other countries follow Austria’s lead. A move below USD 80 could deepen the correction, perhaps pulling the price back towards the mid-USD 70 region. This looks more likely now than it did a day ago and if Germany announces similar measures, it could be the catalyst for such a move. Perhaps OPEC+ knows what it’s talking about after all.

Gold holding near highs on inflation concerns

Gold is continuing to consolidate between USD 1,850 and USD 1,875 after rallying strongly earlier this month. High inflation is continuing to support the yellow metal and is currently stopping this consolidation turning into more of a correction.

As it stands, a run towards USD 1,900 still looks likely as the trend remains bullish but a break below USD 1,850 could lead to a little more softness in the near term, with USD 1,833 key below here.

Inflation isn’t going anywhere soon and it’s continuing to suppress real yields and drive support for hedges. Higher rate expectations could address both of these and take the wind out of gold’s sails but we may have to wait until the Fed meeting for that.

Gold did get a bump from the Austria lockdown announcement as well, especially when paired with the prospect of similar restrictions in Germany. It remains a little off its highs but could be a sign of things to come as we move into the winter.

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