Oil under pressure, gold eyes Fed

Oil could correct further as European restrictions loom

Oil prices are treading water at the start of the week but have been under pressure in recent sessions as major consumers have discussed a coordinated release of reserves and lockdowns have returned to Europe. While further lockdowns aren’t guaranteed, case numbers in some countries are worryingly high and governments may be tempted to follow in Austria’s footsteps.

This is what OPEC+ has warned of for months when forced to defend not raising production as prices have spiked. Now we’re seeing prices correct and that could continue in the coming weeks if countries announce a tightening of restrictions.

While reserve releases will continue to be discussed, they may have lost some urgency after the recent correction in prices, with Brent and WTI back below USD 80 and on a downward trajectory. Leaders of consuming countries may want the pressure to remain so will likely continue to talk up the prospect of coordinated action.

Gold faces a big test at USD 1,833

Gold is lower for a third straight session after enjoying a fantastic rally during the first half of the month.  The yellow metal soared on higher inflation pressures as central banks, including the Fed, pushed back against a near-term policy response. That suppressed real yields and drove investors towards the comfort of inflation hedge gold.

But with the US economy performing well and the consumer in a strong position, the Fed may be better positioned to tolerate higher rates and could adopt a more hawkish position next month. With yields on shorter-term Treasuries rising, gold has lost some of its appeal and now faces a big test around USD 1,833 where it repeatedly saw strong resistance over the summer.

A potential pre-Thanksgiving Fed Chair announcement and the release of the November minutes on Wednesday could be the catalyst for gold one way or another.

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