Oil losses continue, gold gains on Fed

Oil set for weekly losses

Oil is extending losses following a steep sell-off in the previous session. Oil prices dived around 3% on Thursday, putting the black gold on track for 1.5% losses across the week.

This week has been a week of two halves for oil. At the start of the week, oil prices were supported by the ransomware attack on Colonial Pipeline and reopening optimism in the West. However, the second half of the week has seen oil prices come off as the pipeline returned to operation and the India Covid crisis hit fuel demand.

Looking further out, the demand outlook for the second half of this year not only remains solid but has also been upgraded by OPEC. This should keep losses in oil capped and the longer-term bullish trend in play.

Gold rises on Fed reassurance

The yellow metal is extending gains for a second session thanks to falling US treasury yields and a weaker US dollar. Gold found support in the previous session following upbeat US jobless claims and strong PPI inflation data, a sharp turnaround from Wednesday’s steep drop off following the surge in CPI inflation. Plenty of soothing words from the Fed appear to be sinking in. Fed speakers have been out in force over the past few days, hoping to get the message across to the market: the Fed is not planning to adjust policy anytime soon.

Inflation itself is not necessarily bad for the precious metal. In fact, it can be a positive, as gold is seen as a hedge against inflation. The drag on gold amid rising inflation is associated with the remedial action that the Fed may take to rein in inflation.

For now, the constant reassurance from the Fed that inflation is transitory is working its magic, and gold has climbed back above USD1830. However, the upbeat mood in the equity market could keep the yellow metal’s upside capped.

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