Oil rises, gold higher

Oil rises as Covid outlook brightens

Crude prices are climbing higher again on an improving COVID outlook for both Europe and Latin America.  The situation in India remains disheartening, but so far unlikely to be replicated elsewhere.  The crude demand outlook seems to have only one path and that is higher.  India is still trending at over 350,000 COVID cases a day, with a positive test rate of 21%.  The aid that is coming from the EU and US will help India but is unlikely to trigger an immediate decline in cases.  India, the third-largest import of oil probably won’t see crude demand recover for a couple of months.

The EU is feeling the pressure to reopen and the plan to accept travelers immunized with COVID vaccines should provide a big boost for tourism and the airline industry.

WTI crude has recovered most of Friday’s profit-taking move but should still struggle to break above the March high.

Gold

Gold prices are rallying now that Wall Street is pricing in higher Treasury yields at a slower pace over the next few months.  Gold got a boost after Treasury Secretary Yellen stated, “I don’t believe that inflation will be an issue. But if it becomes an issue, we have tools to address it.”

It is taking some convincing, but investors are starting to believe that the current reopening trade and surging inflation reports won’t necessarily mean skyrocketing Treasury yields, which would drag gold down.  A complete recovery is gold’s kryptonite and that will only happen if substantial progress in the labor market occurs.  Bringing back all the low-paying jobs will derail an acceleration with wage growth and that is why gold should still finish the year much higher.

Gold is poised to make another run at USD1,800 and if it does, bullish momentum may jump on this move.  Key resistance remains the USD$1,860 level, which could then pave the way for a run back towards the USD2,000 level.  Massive support remains at the USD1,745 level.

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