Oil’s losing streak, gold hangs on

Oil extends slide

Oil prices are plunging closer to bear market territory on fears global crude demand forecasts for the remainder of the year will see drastic reductions.  Visions of the US economy being fully reopened and with kids attending school in person might have several disruptions.  Too many vaccinated individuals are coming down with COVID and while hospitalizations seem unlikely, a complete return to work for the majority of the population seems less likely as many families have unvaccinated children.

A strong dollar is also weighing on crude prices but that might not last much longer given how strong Treasuries are advancing.  Wall Street is interpreting the Fed’s minutes as a pivot towards hawkishness, but that was already priced in and the dollar will likely see limited upside from here.

WTI crude’s six-day losing streak seems a bit overdone but for it to stop, it might need a sign from OPEC+ that they might hold off on plans to ramp up output.  The oil market is still in deficit and a breach below the USD 60 level will likely attract many long-term bullish bets.  The bottom could be nearing here for crude, but energy traders will need to see some positive headlines regarding global economic growth.

Gold

Gold prices are holding up nicely given the broad risk-off tone that is hitting all commodities.  If financial markets deteriorate even further, it will be interesting to see if gold can continue remaining attractive.

Gold is attracting some safe-haven flows as investors turn bearish with stocks, the delta variant continues to impact high-frequency data, and global bond yields remain heavy.  The American Association of Individual Investors (AAII) weekly survey showed bulls fell to 33.2% and bears rose to 35.1%.  The theme with Treasury auctions shows demand remains strong and the Treasury curve will struggle to steepen.  Today’s 30-year TIPS auction was awarded at a record low yield of -0.292%.

Gold might struggle to break above the USD 1800 level in the short-term, but everything seems to be lining up perfectly for the medium and longer-term bullish outlooks.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya