Oil higher, gold under pressure

Oil hits two-month high on timely production hints

Oil prices are flying; the euphoria of the vaccine news combined with the prospect of slower production increases has sent crude prices to more than two-month highs. The vaccine news is obviously massive here and could really shift the dial on the demand side next year. The timing of Saudi Energy Minister Abdulaziz bin Salman’s comments just further fueled the buying frenzy.

His suggestion that the OPEC+ deal could be tweaked “even beyond what the so-called analysts are talking about” has got traders excited. A near-term supply adjustment and improved longer-term demand prospects are just what crude prices needed and further vaccine news in the coming weeks could propel them further. The obvious downside risk being a severe winter Covid surge and OPEC+ not following through on these hints.

It will now be interesting to see how Brent and WTI trade around USD44 and USD42, respectively, from the upside. Should they find support here, that would be a very bullish signal. To the upside, the next big test will come around USD47 (Brent) and USD44 (WTI).

Gold sees increasing near-term downside risks

Gold enjoyed some mild reprieve yesterday but continues to hover near its three-month lows. Higher yields in the US is continuing to provide some support for the dollar which, in turn, is keeping gold prices under pressure. The key area remains USD1,850-1,860 and it’s looking very vulnerable in the near-term. More vaccine good news in the coming weeks is a big threat to that level.

Beyond that, I continue to think the longer-term prospects for gold are bullish, the road to recovery will take time and require more central bank and government support. But given the reaction we’ve seen to vaccine news in recent days, the immediate downside risks for gold have undoubtedly increased.

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