Oil declines, gold joins super commodity party

Oil

Crude prices tentatively pared earlier losses after US weekly jobless claims fell to a new pandemic low, raising expectations for a faster-than-expected labor market recovery that will unlock a wave of economic activity.  The situation in India is still providing a major drag for oil prices.  India saw the highest daily tally of new COVID cases and while some believe the curve is starting to bend, the hospital situation remains bleak and likely leads to longer lockdowns.

With the supply side remaining supportive of higher prices, oil just needs to consolidate for a month for India and Japan to get a better handle on COVID.  West Texas Intermediate crude could rally 10-15% once India’s COVID crisis improves.  The rest of the world is growing nervous that a prolonged crisis in India could trigger new variants and keep this global pandemic lasting much longer.  Support from the EU and US will intensify as India is roughly 18% of the world’s population.

Gold breaks above the 1800 level

Gold prices are rising as the rebound in Treasuries remains muted despite some better-than-expected jobless claims and productivity data.  It appears the stimulus trade is not going away for gold after a few rate decisions showed policy tightening is still far away.  The BOE, Norges and Turkish central bank policy decisions exemplify the unbalanced economic recovery across Europe and likely affirms the belief that policymakers are in no rush to remove accommodation.

After the NY open, gold finally broke above the USD1,800 level.  It took over a day for gold to lick its wounds after Treasury Secretary Yellen killed bullish momentum with her comment that rates may have to rise to stop the economy from overheating.  Yellen’s clarification did not provide a swift recovery for gold, but nonetheless prices slowly grinded higher.

Gold is watching other commodities in envy, but with Treasury yields capped, its moment to shine appears to finally be here.

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