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Oil’s Losing Streak, Gold Hangs On

Oil extends slide

Oil prices are plunging closer to bear market territory on fears global crude demand forecasts for the remainder of the year will see drastic reductions. Visions of the US economy being fully reopened and with kids attending school in person might have several disruptions. Too many vaccinated individuals are coming down with COVID and while hospitalizations seem unlikely, a complete return to work for the majority of the population seems less likely as many families have unvaccinated children.

A strong dollar is also weighing on crude prices but that might not last much longer given how strong Treasuries are advancing. Wall Street is interpreting the Fed’s minutes as a pivot towards hawkishness, but that was already priced in and the dollar will likely see limited upside from here.

WTI crude’s six-day losing streak seems a bit overdone but for it to stop, it might need a sign from OPEC+ that they might hold off on plans to ramp up output. The oil market is still in deficit and a breach below the USD 60 level will likely attract many long-term bullish bets. The bottom could be nearing here for crude, but energy traders will need to see some positive headlines regarding global economic growth.

Gold

Gold prices are holding up nicely given the broad risk-off tone that is hitting all commodities. If financial markets deteriorate even further, it will be interesting to see if gold can continue remaining attractive.

Gold is attracting some safe-haven flows as investors turn bearish with stocks, the delta variant continues to impact high-frequency data, and global bond yields remain heavy. The American Association of Individual Investors (AAII) weekly survey showed bulls fell to 33.2% and bears rose to 35.1%. The theme with Treasury auctions shows demand remains strong and the Treasury curve will struggle to steepen. Today’s 30-year TIPS auction was awarded at a record low yield of -0.292%.

Gold might struggle to break above the USD 1800 level in the short-term, but everything seems to be lining up perfectly for the medium and longer-term bullish outlooks.