Oil, gold extend rallies

Oil set for weekly gains

Oil is extending gains and is on track for a weekly rise of more than 2% on the back of a broad rally in commodities. Strong data from both China and the US are also underpinning oil.

Reopening optimism is playing out in the commodities market, where base metals and oil have been beneficiaries. As more evidence of a global economic rebound comes through, oil bulls are gaining in confidence.

Data from the US revealed that jobless claims declined for a fifth straight week to post-pandemic lows, fueling expectations of a strong economic recovery and rising fuel demand. China, the largest importer of oil, saw the Caixin services PMI print at 56.3, while exports grew 32.3% YoY. With the economic recovery in full swing, Chinese energy consumption is rebounding.

Near term, the main risk to oil prices is the spiralling Covid crisis in India. Looking further out, the US-Iran efforts to revive the nuclear agreement could result in sanctions being lifted, but for now, this is a sideshow.

Gold trades at 2 1/2 month highs

Gold is heading for its best weekly performance in over five months. The price has rallied 2.5% so far this week and trades at a two-and-a-half-month high, thanks to a weaker US dollar and softer treasury yields.

The price has retaken the key USD1800 as treasury yields dip below the closely watched 1.6% and the US dollar trades at weekly lows.

The NFP print will be key for gauging the Fed’s next move and determining where gold goes from here. Blowout numbers could see investors become more positive on the outlook for the US economy and start to price in an earlier move by the Fed. This could see non-yielding gold lose its shine and drop back below USD1800.

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