Crude follows Treasury yields, gold rally fades

Crude prices are mirroring the rebound with Treasury yields as energy traders still see a very tight market despite all the recent virus jitters.   The oil market could get a lot tighter if more companies follow the potential story that global miner BHP Group is considering exiting the oil and gas business.  While the global pressure to reduce one’s carbon footprint seems to only grow, the energy market could see some supply issues over the next year and that should keep oil prices supported.

The crude demand outlook won’t improve much until the current delta variant wave passes and vaccinations efforts improve globally.  The fact remains the oil market is strongly in a deficit and that most of the world won’t commit to a big disruptive lockdown that will kill short-term crude demand.  Oil prices are still likely to make a run towards USD 80 a barrel later this year.

Gold well-supported at USD 1800

Gold prices gave up their earlier gains after the bond market rally was exhausted and delivered a steeper curve.  Wall Street got its Tuesday rebound and that was good news for risky assets and not so much for safe-havens such as gold.  The dollar looks like it still has some gains in its future and that could dent the demand for the precious metal.  For now, gold appears to be forming a consolidation pattern between USD 1,800 and US 1850.

The yellow metal has been well supported in recent weeks and that could continue as long as policymakers hold their nerve in the face of surging inflation.

Gold is in a tricky place that requires a Goldilocks situation, with the broader market looking upbeat, but not too positive that an accelerated tapering of asset purchases becomes a dominant theme.  If the bond market sees a slow steepening of the yield curve, that is the perfect environment for gold to breakout above the USD 1,850 level.

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