Oil and gold down on strong dollar

Oil market eyes OPEC+ meeting

A trifecta of reasons sent crude prices lower: The Suez Canal is open again and the backlog could be cleared within a week.  The US dollar surges on recovery bets as Americans prepare for a normal summer and for the economy to run even hotter if Biden is able to deliver his infrastructure spending plan.  The main event for the energy market is the upcoming OPEC+ meeting, and a panel of OPEC+ technical experts have cut the crude demand estimates for 2021.  It seems clear that Saudi Arabia is posturing for output to remain steady or possibly a tentative reduction in output.

WTI crude trading around the USD60 level seems right, so energy traders should not be surprised with a continued consolidation leading up to the OPEC+ meeting.

Gold under pressure

Gold demand appears to have disappeared as Wall Street becomes fixated on President Biden’s big infrastructure proposal, which will be relentless support for an already quickening economic recovery.  Gold is about to fall into bear market territory as Treasury yields surge, driving a much stronger US dollar.  The catalyst needed to trigger a buying spree for gold is inflation.  The US economy is about to run too hot and sustained inflation will take time to prove.  Gold’s bullish outlook for the second half of the year should start to attract investors, but caution remains as concerns grow that the dollar could have one last major thrust.

In the bigger picture, the premise that gold is attempting to trace out a longer-term bottom is still holding. Only a series of daily closes below the 61.80% Fibonacci at USD1785.00 an ounce would invalidate that premise. Nevertheless, with the highly-anticipated Biden announcement to come tomorrow evening, the threat to gold rises, particularly if the details cause the bond markets to have a tantrum, which would send yields even higher.

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