Oil rises, gold slumps

Oil climbs on higher risk appetite

Crude prices are soaring as risk appetite returns and energy traders believed a 15% pullback over the past two weeks was excessive given how tight market conditions remain.

Yesterday, prices initially plunged after the API reported a surprise build of 806,000 barrels last week, the first time stockpiles rose since May.  Today’s EIA crude oil inventory report showed stockpiles rose more 2.1 million bpd, more than the analysts’ consensus of a 3.9 million draw.  A big build in the Gulf Coast stemmed from an almost 40% drop in exports.  Imports rose to the highest levels since last July.

WTI crude initially dipped on the crude build but resumed climbing higher as US production stayed steady at 11.4 million bpd.  Private operators may take advantage of supportive oil prices above USD 60 and that should suggest US producers may start to increase output.  OPEC+ isn’t fearful of US production ramping up too much and that should allow this market to remain tight.

Gold

Gold prices slumped on both rebounding Treasury yields that sent the dollar higher and as robust earnings dented demand for safe-havens.  Gold may consolidate around the USD 1,800 level, but the longer-term outlook is still bullish as the fight against COVID-19 will drag into next summer as every nation tries to get around 70% of their population vaccinated.  Gold should see steady inflows since the global economic recovery is still vulnerable to further restrictions of movement, alongside some signs that inflationary pressures are peaking, which could delay tightening cycles for some central banks.  A lower interest rate environment across the major central banks is inevitable and that should be a key argument for holding onto bullion.

Another reason why gold is underperforming the risk-on trade today is that bitcoin is seeing strong demand.  The institutional world has slowly been increasing crypto exposure as some traders moved funds that normally would go to gold into cryptocurrencies.  If the bitcoin boom reasserts itself, that could mitigate some of the upside potential for gold.

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