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Don’t Look At The Bad Side Of Gold | What Is Supporting Oil Price?

  • Dark clouds are back again but look further than this
  • The greenback is way overbought
  • Oil price is firmly holding on to its gain

The perfect definition of tapering means that it keeps all the bull rallies for gold in check. The precious metal dropped below $1200, but the weakness in the dollar index helped the metal to rise above the $1200 yesterday. But the dark clouds are back and this has pushed the price of gold back down once again. One may say that golden days are over for gold and we are not going to see any bull rally and the gold price won’t be touching the previous highs of $1400 or $1800. This a typical sentiment when the bears control the market.

But this would be completely wrong, the gold price is holding its ground really well, yes really well. You have to look deeper to see this and if you compare the price of gold when it dropped below $1000 (back in 2015) on the back of the tapering of US monetary policy. So, it may be not wrong to say that the price of gold is only mainly under pressure due to the strength in the dollar index and this it is still looking relatively more positive given that the Fed is in its final stages of bringing the interest rate back to its normal level.

Moreover, the greenback is way too overbought and the given the current stampede that we have experienced in the emerging market and the longest bull rally in the global equity markets, it is almost certain that the bearish trend for the gold price won’t last forever. I think we are close enough to find the bottom. Also, the gold price being below 1200, also brings serious buyers in the market due to the psychological effect.

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On the other hand, oil price is firmly holding on to its gain as investors are scratching their head when they see the oil production report from Saudi Arabia. It is in Saudi Arabia’s interest to push the production higher especially if it wants to press Iran. Moreover, the US has also been supportive of higher production from the OPEC committee. Thus, it makes one’s mind boggle when one looks at the Saudi oil production data. However, it is important to keep in mind that the Saudis need to keep the price of oil artificially higher by controlling supply because of the incoming Armco’s IPO.

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