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Oil Rally Continues, Gold Gains Ground

Oil resumes rise

After tanking more than 3% in the previous session, oil is clawing its way higher as fears over supply disruption in Saudi Arabia ease and the US dollar rally pauses for breath. Oil markets fell overnight as investors locked in recent profits and started turning their attention to next month’s OPEC+ technical meeting, where expectations are that the grouping will ease supply curbs.

Despite yesterday’s sell-off, the uptrend in oil remains on track. The price of both WTI and Brent had tipped into overbought territory so some level of consolidation or a pull-back is not that surprising given the strong rise in oil prices over the past few months.

Given the vaccine rollouts, economies reopening and the massive US stimulus package, which is just days away from being rubber-stamped, the outlook for oil demand remains strong. However, the same factors are also strengthening the US dollar, which could keep additional gains in oil capped.

Oil’s ability to stay at these levels also depends on what OPEC+ plans to do next. Just recently the group surprised the market by keeping production cuts in place.

Gold lifted by weaker USD but outlook remains bearish

Gold is advancing thanks to weakness in demand for the US dollar. The precious metal sold off sharply in the previous session as the non-yielding metal failed to compete with rising bond yields. However, strong gains in equity markets could keep the upside capped for the precious metal. While short-term indicators favour gold bugs, the longer-term outlook remains bearish. It appears that we are entering into a range-trading scenario, and it is hard to see gold managing to rise through USD1720.00 an ounce this week.

Friday’s stellar non-farm payroll report reinforced expectations of a strong global recovery. As conviction surrounding the covid recovery grows, commodities are returning to their pre-pandemic dynamics, which is not good news for gold.