Oil rallies on EU optimism, gold drops on surging yields

Oil prices continue to climb

Crude prices are rising on global reopening momentum, Moderna’s announcement to almost double vaccine capacity for the next year, and as Germany administered a record 1.1 million COVID vaccine doses.  Despite concerns over the Indian variant, parts of Europe are also heading towards reopening and could be poised to have a somewhat normal summer.  The crude demand outlook is getting a big boost from Europe and that should overcome some of the risks across India and many emerging markets.

WTI crude’s rally was getting close to the ceiling put in place in March and quickly pared gains after a surge in Treasury yields triggered a slight bid for the dollar.  The outlook is still much higher for WTI crude, but a break of the USD68 level will be difficult to come by until the COVID situation in India improves.

Gold/Copper

The commodity supercycle has yet to help excite gold bulls, but it has been good to copper.  Copper prices breached the USD10,000 level on infrastructure spending hopes, climate-friendly initiatives, and optimism that the global economic recovery will be strong and extend into next year.

Gold plunged after Treasury yields surged higher following robust earnings and improving economic data derailed the safe-haven trade and on rising bets that the Fed may be proven wrong about inflation being transitory.  Gold has massive support at the USD1,745 level and if that holds, a consolidation period will likely remain in place over the short term. Gold will eventually climb higher; it just needs to see the bond market believe that the Fed will remain stubbornly accommodative throughout the next few months of robust economic data.

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