Oil rally takes breather, gold climbing

Oil pauses for breath after stellar rally

After a phenomenal run-up last week, oil bulls are pausing for breath. Both oil benchmarks were propelled over 6% higher in the previous week boosted by a larger than forecast draw in stockpiles and upward revisions for the demand outlook by both OPEC and the EIA.

Whilst the US vaccination drive hit an impressive 200 million dose milestone over the weekend, the situation is markedly different in some developing countries. The difference between the Covid situation in developed countries compared to developing countries is glaring and growing. India recorded a record 273,810 new daily cases on Monday, with Hong Kong suspending flights to and from the country.

Concerns are rising that tighter lockdown restrictions in countries such as India and parts of South America will drag on demand for fuel. These fears are keeping gains in oil in check at the start of the new week.

In the US, Baker Hughes data revealed that the oil rig count rose for a fifth consecutive week, the longest run since February. Higher oil prices are encouraging drillers to return.

Gold breaks out as bond yields decline

Gold is roaring high on Monday. Non-yielding, US dollar-denominated gold is being supported by falling US Treasury yields and a softer tone surrounding the US dollar.

News that the PBOC will allow commercial banks, both domestic and international to import large amounts of gold to satisfy rising domestic demand is music to the ears of gold bulls. With China’s economy well on the way to recovery, rebounding strongly in the second half of last year, demand for gold jewelry, bars and coins has recovered weaker levels in the pandemic.

The price of gold has formed a double bottom reversal pattern indicating more gains could be on the cards. USD1800 is lining up to be the next target.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.