Oil up on demand outlook, gold losing shine

Oil rises on strengthening demand outlook

Oil prices are on the rise at the start of the new week, building on three straight weeks of gains as the demand outlook continues to improve. Successful vaccination programmes have helped ease travel restrictions, boosting the outlook for fuel demand.

Motor traffic is returning to pre-pandemic levels in the US and much of Europe. Air traffic is also on the rise. More than two million people walked through US airport security checkpoints on Friday for the first time since early March, as the world’s largest consumer of oil hits another key milestone along the path to normality.

OPEC+ is not due to meet for another two weeks. Given the current outlook, it’s likely that output will need to be increased to meet rising demand.

Meanwhile, US rigs in operation rose by 6 to 365 in total, as reported by Baker Hughes. This is the highest level since April 2020, reflecting growing optimism in the industry.

Gold breaks lower

Gold can’t shake off that losing feeling. The precious metal is extending losses into a third straight week, trading around 1% down, at its lowest level in almost a week. Gold is losing its shine against a stronger US dollar as investors remain jittery ahead of the Federal Reserve monetary policy announcement on Wednesday, after a spike in inflation.

The gold market is starting to price in a slightly less dovish Fed at the FOMC. Traders are re-positioning for the next phase in the recovery trade. As a result, the US dollar is finding some support, trading at a weekly high, and investors are booking profits in gold. While the Fed has been unwavering in insisting that the sky-high inflation is transitory, investors are pricing in a pivot away from ultra-loose policy.

After breaking a key trendline support level around USD1879, gold is falling steeply lower. A close below this level will validate the bearish reversal from USD1900.

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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.