Oil resumes its rise
Oil prices are on the rise, paring mild losses from the previous week. After a volatile week that saw Brent push past USD70 per barrel, oil closed the week -0.2% lower. This is a mere blip in what has been an impressive bull run since the start of the year with Brent up 30% in just three and a half months.
Chinese data overnight has offered some support to oil, as have reports that Saudi Arabia has cut the supply of April crude to four north Asian buyers by some 15%. This comes as the OPEC report last week revealed OPEC downgraded its demand outlook for the first half of this year but upgraded its demand forecast for H2.
An acceleration in China’s industrial output is underpinning the price. China saw a 35% jump in production compared to a year earlier – a slightly misleading figure given that the comparison is with February last year when China was in the midst of its Covid outbreak.
Can gold find acceptance at these levels amid elevated yields?
With US treasury yields easing back off the fresh 12-month high, gold is pushing higher to USD1730. For gold bulls to make a meaningful move northward from here, the market needs to show its readiness to live with yields at the current elevated levels. Non-yielding gold has so far struggled to compete while the focus has been so firmly on rising US bond yields. The precious metal trades well below its 50, 100 and 200 SMA on the daily chart in an established long-term bearish trend.
Still, it was encouraging to see that gold did not wilt in the face of higher US yields and behaved like an inflation hedge. This could signal that a material bottom has formed. Should gold manage to extend its near-term recovery above USD1,740 then bulls could target USD1,800.